Northern Technology fund is buying CMDX
September 12, 1999
It's Not Yet Time
To Flee Dot-Coms
By STEVEN SWARTZ
Remember back to last September, after Russia imploded, Brazil was on
the brink and it truly seemed as if the world was coming to an end? Judging
by the news coverage, any sane investor would have seemed totally
justified to pull all of his or her money from the market and head for the
nearest fallout shelter.
It was, in hindsight of course, the perfect time to buy great companies.
America Online is up more than 300% since last fall, Cisco Systems up
around 200%, and Intel has doubled.
Many investors in the Internet sector are now reliving last year's panic. Net
stocks like Amazon.com and eBay are off close to 50% from their highs.
Higher interest rates threaten to choke off any remaining investor interest in
this sector. And some Wall Street pundits are trumpeting the Japan
analogy. By 1992, the Japanese stock market had fallen by half: Seemed
like a buying opportunity, for sure, but it wasn't to be for another seven
years.
If all this scares you off, feel free to completely bypass the Internet sector,
and by all means, don't invest any money you may need over the next few
years. This sector will continue to be volatile, and could in fact go lower
before going higher. We fully expect some of the more dubious dot-coms
to head further toward the oblivion they so richly deserve.
Down But Not Out -- Internet Gambles
Although many Web stocks are way off their highs this year, these few
look like better bets than the rest.
Company
1999 Low
1999 High
Friday's Close
Yahoo!
$119.25
$219.13
$170.50
America Online
70.22
167.50
96.3125
Amazon.com
42.75
105.06
66.50
eBay
60.58
215.00
158
CNET
12.10
71.38
43.3125
Source: Baseline
But to us, the Internet sector today doesn't seem so much Japan in 1990
as it does a more supercharged version of the personal-computer market
circa 1982. Already the Internet has penetrated virtually every facet of our
economy, and yes, some companies, like AOL, are actually making
money.
As with the Internet, there was no shortage of pundits predicting the PC's
demise. Research by our financial editor, Jersey Gilbert, shows that such
PC-related stocks as semiconductor maker Intel and microprocessor
maker Motorola each had a major correction, or fell in price by more than
20%, six times in the '80s. In each case, investors with the foresight and
fortitude to take the long view were rewarded with spectacular returns.
Putting $1,000 into Intel following its 1986 correction would have netted
you more than $100,000 today.
Some Internet stocks have rallied lately, and many remain far above their
lows, which might cause some investors to invoke the six most costly
words of this decade: It's too late to get in.
That's like saying it was too late to get into the auto industry earlier this
century, or railroads in the last. Don't believe it.
Yet the story of the auto industry or that of the railroads does yield a
cautionary tale that investors should heed: There once were thousands of
auto companies, most of the railroad companies also no longer exist, and
even in the PC business, does anybody remember such can't-miss
companies as Kaypro or Commodore?
It's truly difficult to judge at this early stage which Internet businesses or
even business models will prove a long-term success. In the weeks to
come we'll highlight some of the companies that truly seem poised to
change the world, but one of the smartest ways we know to jump into the
Internet at this stage is through a fund, and based on our reporting, we'd be
hard-pressed to find a better one than Northern Technology (
800-595-9111 or www.northernfunds.com).
There's no shortage of people who think they know where the next big
thing on the Internet is, but two who've actually proved to know in the past
are George Gilbert and John Leo of Northern, who've been up an average
of 55.1% over the past three years and 45.3% year to date. The average
technology fund, by comparison, is up an average of 37.7% over the past
three years.
You can find some fund managers with better one-year records, and you
can find some managers who've made a bigger pure bet on the Internet.
But Messrs. Gilbert and Leo have experience, and the diversity of their
fund allows them to take advantage of other technology trends as well.
The duo were early investors in the likes of AOL and Yahoo! and, having
anticipated the net sell-off of this summer, lightened up on their pure Net
holdings. But now the pair say they are buying again, namely e-commerce
stocks Chemdex and Ariba, and anticipating a big Christmas, they're
eyeing eToys and Amazon.
--Steven Swartz is editor in chief of SmartMoney magazine. Contact
him at: The Wall Street Journal Sunday, 200 Liberty Street, New
York, New York 10281. Email: personal.business@wsj.com
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