[Landis and Kam in Barron's]
Dennis --
With one foot practically out the door, I came on to check my mail and wasn't going to post, but having read the article a few minutes ago --- and having it sitting here beside me as we speak --- it's hard not to. Great minds. . . :))
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Q: Okay, but you have to admit "Technology Value" sounds like a contradiction. "Value investing" conjures up an image of Midwestern grommet companies, not chip makers.
Landis:Our goal is to have our cake and eat it, too. There are great companies out there, and if we're patient and do our homework, we can buy them at the right price. It's a matter of finding instances where the companies are misunderstood. Electronics and medical-technology companies can grow rapidly, but they can be difficult to understand. They both have a lot of potential, and a lot of potential to be mispriced. That provides opportunity. With strong research and investment discipline, we can buy great companies at great prices.
Q: Well, then, what makes a tech stock a value play?
Kam: On my side of the portfolio, medical stocks, you find lots of companies that don't have revenues, let alone earnings. You need to ascertain value by reading clinical trial data, and looking at physician acceptance. If the only way you look for value is to look at revenues and earnings, you're going to miss the leading-edge companies. Their products aren't going to show revenues or profits until they get through the regulatory process, which takes two or three years. When it comes to medical technology, you need a good understanding of what problems need solving. Many value investors look for stocks trading at low P/Es. I look for devices in an early stage of development that solve a big medical problem. [He gives example.]
Landis: Let me come back to the value question. You can't look at chip and networking stocks the same way you'd analyze medical stocks. I can look at P/Es and other traditional value measures more than Ken can. Actually, a lot of people think high-tech companies never have low P/Es. Not true. Disc-drive and semiconductor-equipment stocks, for example, have chronically low P/Es.
[Admits to owning lots of networking and chip stocks. . .]
Q: On the other hand, there's networking.
Landis: The sector demonstrates we're better investors than market timers. In the first quarter, the fund dropped a little over 9%, most of that attributable to poor timing on my part in moving into those stocks in December and January. I was afraid to miss a buying opportunity. Turned out there was more of an opportunity than I'd anticipated.
Q: Oops.
Landis: My eagerness to jump in stems from a bullish long-term view of the sector. When you're doing fundamental research on companies, looking at the markets they serve and the products that they offer, you're going to get insights that will give you an indication about where things are headed. But that's not necessarily useful in coming up with a good trading strategy, which is why we tend to have a buy-and-hold approach.
Q: Well, what's so great about networking stocks, anyway?
Landis: Looking ahead, I just can't envision a scenario in which demand for data traffic fails to explode. My perception is that the industry lately has been hurt primarily by product-and technology-transition issues. There are companies out there having to make buying decisions with far-reaching implications for them. Many have hesitated, to be sure they're making the right decision.>>>
In Amati's case, I've often thought it's similar to a biotech in terms of growth potential --- and intrinsic value beyond the balance sheet. Based on Landis and Kam's attitude towards the networking industry and towards picking potential winners before they have earnings or even revenues, and based on their investment theory of buy-and-hold, I think those of us who've followed Amati over a year can safely say we're in good company.
Thanks for mentioning the article. I highly recommend it to everyone.
Now, I've got a plane to catch.
Cheers!
Pat |
