You are absolutely correct to be aware of the caution signs. These are some of the major factors we must consider when deciding on which stocks to choose for the portfolio. Even 2 years ago, if I had picked the 'wrong' stocks for the model communications semi port, the final outcome would have been very different. Not to pick on ANAD, but they are a good example of a decent company, that gave a decent return but didn't really hold up against the companies on the port. Similarly, had ETEK and SDLI been part of the portfolio, instead of VTSS and GALT, the stellar returns would have been even more spectacular!
The key is in balancing the projected market environment, product demand, company valuations and expected/potential growth rates. A very few people were looking at the tidal wave approaching in communications semis back in the dark days of late summer 1998. Those of us who did, took a chance and were rewarded. I see a similar situation setting up this summer. The key will be to find the companies that will take advantage of coming market dynamics, or finding companies that are out of favor to the extent that the next 2 years will dramatically change the sentiment surrounding these businesses.
I look at the fantastic growth being shown in the storage sector (SAN, NAS, Fibre Channel, G-Ethernet, etc). I look at the fantastic growth in specific segments of the telecom industry. I look at the tremendous growth of the internet. I look to the horizon and try my best not to ignore the problems. The key is in finding the 'solutions'! |
