>Having no experience in this type of market condition, I sold off
>about 40% of my portfolio, starting a couple of months ago. In
>hindsight, 100% cash would have been better.
>Well, off to Costa Rica for the rest of the year. Just have to
>forget the market for now.
Ramsey, I concede there is an Asian problem which has become a crisis. I toured China in May largely because I wanted first hand knowledge of developments in that important country. However, I think you are not putting Asian issues properly in perspective. You can do what you want, but most serious investors should not exit the market just because there is turmoil. Let me explain.
There are two overriding issues related to the Asian contagion, which I will refer to as (1) the Asian crisis, and (2) the Asian problem. Korea imploding causes a crisis, with panicky behavior by investors.
Panicked investors take out the good with the bad, so any rational investor would love to be on the sidelines when a crisis starts, buying as it unfolds. Unfortunately, crises don't advertise themselves in advance, so most investors get caught fully invested when one hits, and must decide between riding it out or selling into the panic. Korea imploding is a crisis. The damage the Korea crisis did to QCOM Friday, not to mention WIND last week, is unfortunate, but thankfully it should not be long-lasting. Crises are never long-lasting, and they always get fixed, or at least patched over so we can pretend like they are fixed.
In other words, I never spend any time worrying about crises. Since you can't see them come, and they always go away, at worst you can simply ignore them. At best, buy the panic.
The Asian problem is a different matter. Some pundits have been disturbed with the Asian brand of capitalism for years, while others have championed the Asian way. Well, the worriers have been proven right. Asian countries must address deep problems with their economies if ever they hope to stop hemorrhaging and prevent a gradual meltdown. Even more than Korea, Japan needs to open up and get their economy moving. The real problem is that most of Asia is still in denial, and it will take years at best to work through all the needed changes.
Now here's the rub. As an investor, I can't sit on the sidelines and wait for Asia to get its house in order to a level that makes Ramsey Su comfortable. I'm not even sure Ramsey Su knows what that level is. To be perfectly frank, not everything is perfect in US either. Am I to wait until our budget is balanced , or our Social Security problem is solved, before risking investing in America?
There are problems in Asia, but also there remain immense opportunities. For example, today Siemens announced a $1.6 billion contract from Taiwan, one piece of a $13.6 billion bullet-train project. Asia is big business, and it is not going away. As you know, China is filled with potential problems and opportunities, both for Chinese and the rest of the world. A tepid Japan could let Asia sink into an unending abyss. A take-charge Japan, well within their potential, could lift all of Asia out of its current woes. What I don't see is how or when these problems or opportunities will show themselves, if at all.
Meanwhile, there are other routine, non-Asian problems and opportunities related to technology investing that have vastly greater impact than the Asian problem. Over-capacity is not an Asian thing. It occurs when a sector with multiple players matures and products become commodities. It always raises havoc when it first happens, altering the landscape of how the financial market treats affected companies. Commoditization of high tech products is a process guaranteed to be re-enacted over and over -- forever. You can't escape it by taking your chips off the table.
Traders can plunge in where investors fear to go. But seasoned investors avoid commodity sectors, or sectors that are soon to become commodity. Why? Such sectors not only are subject to price wars, but they often fair poorly during recessions. The combination often gives these companies cyclical performance patterns putting incredible demands on management. And they make for a vastly more difficult determination of intrinsic value. Maturation of the networking equipment sector during 1997, along with the re-demonstration of the maturity of data storage companies (tape and disk drives and memory) has more to do with the turmoil in technology than Asia.
As a group, software is down about 5% on the year, following a poor showing in 1996. Some of software's problems seems to stem from the MSFT hegemony, trampling lessor ISD's in the PC software business. Borland, Novell and Intuit come to mind. Whenever software is competed mostly on price alone, it can take the definition of commodity to a new level - a consequence of the marginal cost of software being zero. When software is not competed on price, but on standards, features, training and ultimately a commitment by management, the leader will find itself in the best of all possible businesses, while secondary players get trammeled. Software is becoming a winner-take-all business, which means that investors have to pick the right company based on operational position and opportunity, not P/E ratios or other typical financial measures.
Taken altogether, the conservative investor interested in exceptionally high returns and protection of assets concentrates on developing a portfolio of non-commodity technology companies leading their high-growth sectors (preferably software). There are very, very few of these companies. WIND is the best one I know for sure. QCOM is one (although not in software, and watch out for the volatility). Oracle is one. SAP may be one. Certainly MSFT is one (but MSFT's paradigm is endangered and opportunities for continued high-growth are limited). INTC is one for the moment, but in time will become merely the dominant commodity chip company. And no doubt there are others, but I lack the knowledge or confidence to name more. (The fact that QCOM sold off Friday on a misinterpreted concern about Korea is a buying opportunity; ditto for Oracle re last week's sell-off over flat Asian sales.)
Remember all the discussion on the thread about the relative performances of Radisys vs. WIND? Throughout that discussion my position was always the same: I don't know Radisy, and I certainly don't understand why they will be able to protect their future share of an emerging embedded PC systems integration sector. Lacking this knowledge, I couldn't buy the company no matter how well it seemed to compare with WIND, or any other stock, based on financial performance and projections.
Enjoy Costa Rica. I for one will be interested in when you decide the world is safe enough again to warrant your reinvestments.
Allen |
