Sunday Night. What NOW?    
                                              
 Sunday, April 16, 2000, 10:32 PM

 by Harry Newton

 I spent the weekend studying. The most profound statements came from Saturday's editorial in The New
 York Times:

 "Forget about finding a single, decisive explanation for the plunge. Everyone will seize a favored
 candidate. The important point is that when stocks lose touch with their economic moorings,
 anything -- an ugly inflation report, as occurred yesterday, or a judicial blow to a prominent
 company like Microsoft, which triggered an earlier slide -- can frighten investors.

 "In the recent past, investors have taken falling stock prices as golden opportunity to buy, so stock
 prices have quickly rebounded. No one can know if that pattern will reappear when the markets
 open on Monday, but every study of stock prices is reassuring. Take any reasonably long-term
 period, and stock investments do just fine." 

 Hooray for sanity!

 On Friday afternoon at 3:58 PM, I jumped into the market, I bought IBM, Qualcomm, Oracle and JDS
 Uniphase. I tried to get Intel but missed. These were my first "buys" in over a week. I believe they'll all be
 bargains by the end of this week. I'll be buying again tomorrow, Monday. I believe others will also.

 The Nasdaq Composite Index has now dropped 35% from its record high close of 5,048 on March 10.
 Nasdaq is now down 19.6% year to date. The Dow is down 9.3%. 

 We're getting to the bottom. Monday morning will be awful. But then things will start to look better.
 Read on. Here's Technology Investor Magazine's best take on what's happening::

 1. Margin calls drove the market on Friday into free fall. As margin loans were called and not met,
 brokerage firms dumped whatever stocks their customers owned. They did this in a desperate attempt to
 pay off the loans. The biggest margin loans were always on technology stocks. Calling these loans
 caused the Nasdaq selling. When the Nasdaq stocks dropped so much, many people filled their margin
 calls by selling NYSE stocks that hadn't fallen as much. This led to strong Dow selling. On Friday, the
 Dow had its biggest point drop in its history  -- 618 points. 

 2. Tax selling hit with a vengeance. Many people made huge profits on technology stocks last year.
 Nasdaq was up 85% last year. People delayed selling, believing that gains in 2000 would pay their 1999
 taxes. This tactic worked until recent days when tax selling got panicky. Many people have had to dump
 their stocks to raise cash. They sold indiscriminately. Tax selling is now over. Saturday was April 15,
 though tomorrow, Monday is the real deadline. (Tax days get delayed if April 15 falls on a weekend.)

 3. Friday's inflation figures were not wonderful. The jump in consumer prices spooked investors.
 The Consumer Price Index rose 0.7% in March, the biggest monthly increase since April, 1999. For the
 first quarter, inflation was up 5.8% -- more than double the 2.7% of first quarter 1999. The Core CPI,
 which excludes food and energy, was up 0.4% in March -- double what economists expected.

 Investors fear that inflation will undermine the value of their assets. They also worry it will encourage
 the Federal Reserve, which is obsessed with curbing inflation, to slow it by raising interest rates and thus
 slow economic growth. Speculation is now marginally rampant that the Fed will raise rates half a percent
 (0.5%), instead of the expected (i.e. hoped for) quarter of one percent. 

 Given the cratering of Friday's market, this fear may be overblown. The "Wealth Effect" has
 evaporated. Removing it should be sufficient to slow the economy and the inflation. We'd be very
 surprised to see any rate increase by the Feds at their next meeting, which is on May 16.

 4. Several market "gurus" toned down their enthusiasm for technology stocks. They
 recommended less of one's portfolio in technology. In a turnaround, these gurus are now publicly stating
 their long-term enthusiasm for technology stocks, e.g Abby Joseph Cohen. On her Friday night interview
 on CNBC, she said nothing fundamental had changed. She reaffirmed her belief in technology stocks.
 Anyone who watched her came away with the impression that she was bullish..

 5. Microsoft, Motorola, RIMM and other technology "disappointments" occurred before the good
 news of this earnings season could counter balance. We've had excellent earnings reports from
 Advanced Micro Devices, Ariba, Altera, Sun and Gateway. They will continue and, in fact, accelerate this
 week, when Texas Instruments, America Online, IBM, Qualcomm, Tyco International, Apple, and Lucent
 report. On Thursday Microsoft will report. I think the company will push its sunny side and speak with
 great optimism about how wonderful Windows 2000 is. (It actually is pretty good. Our tests of it are
 very encouraging.) 

 6. Most sophisticated investors have gone heavily to cash and are holding back from jumping back
 in. They'll have to come back in shortly. You can't achieve a reputation for being a great money manager
 by sitting on cash for long. TrimTabs, a market monitoring service, estimates that $10.1 billion dollars
 flowed into US equity funds April 6, 7 and 10. That's a record for three days. That means there's a lot of
 money sitting on the sidelines waiting to be invested in equities.

 Some (not many) money managers jumped back in at 3:50 PM this afternoon. If you look at both the
 Nasdaq Composite Index and the Dow Jones Industrial Average, you can see a big bounce beginning at
 around 3.50 PM. It was this bounce that caused me to jump in.

 7. Recent market ups and downs have been a paradise for daytraders, who have mercilessly
 hammered any weakness they saw. These people trade through ECNs (Electronic Communications
 Networks), bypassing "market makers." Major firms like Morgan Stanley now make markets in far fewer
 stocks than they did even a year ago. This adds to volatility. When it tumbles, today's forces cause more
 tumbling. In the old days, the "market makers" added some measure of stability. No more. The daytraders
 now account for 35% of daily volume on the Nasdaq and NYSE. That's a gigantic number. Daytraders
 love volatility. They compound it, like pushing a child's swing.

 8. CNBC, CNNfn and newspapers have focused America's attention on the markets, compounding
 the panic.. If you focus on pain, it hurts more. CNBC now reaches a gigantic 77 million homes and
 offices. CNNfn another 12 million. That's an awful lot of panic. Bars don't watch sports anymore. They
 watch the stock market.. 

 9. Volume has been relatively light. There hasn't been a wholesale panic -- a wholesale dumping of
 shares (except by traders caught by margin needs). Just there haven't been any buyers. Despite the little
 bit of "smart money" at the very close today, "smart money" has stayed out of the market in the last
 couple of weeks.  It's been waiting for some sign of "bottom" -- which, I believe, will be early this week.

 What now?

 More immediate pain on Monday with more margin calls. There were a lot of margin calls that went out
 over the weekend. Monday morning and lunchtime will see few buyers and lots of investors and
 institutions sitting on the edges waiting for a sign that it's getting to an end and waiting for a sign that
 NOW is ripe to start grabbing bargains. I'll be there also.. 

 Should you sell now? If you still have "junk" stocks, sell them. They won't come back. "Junk" stocks are
 those that have a problem or whose earnings have disappointed Wall Street. The Street is increasingly
 merciless about stocks that disappoint. It is also increasingly broad about its definition of what has
 disappointed it. Microsoft, once highly venerated, now falls into the widening "disappointed" category.
 Ditto for RIMM.

 Stay with your quality. If you sell your quality now, you may miss the turn. This is a very thin market. I
 know how thin it is. It was not easy to buy a few shares at 3:55 PM on Friday afternoon.

 Should you buy now? If you have cash, grab the biggies. Applied Materials, Cisco, IBM, Intel, HP,
 Nortel, Oracle, Qualcomm, Sun and Texas Instruments -- what we call "Core" technology stocks. In a
 week, today's prices will look cheap.

 Above all, don't abandon technology. Don't flee to old economy stocks. Old economy stocks are not a
 "safe haven." Warren Buffet and Julian Robertson ignored technology, to their peril. From January 1990
 to Friday's miserable close, technology stocks have still done four times better the S&P 500. Above on
 the right is a chart showing the numbers. It's right up to date.

 Long-term, technology stocks do far better. They make far better investments, because technology is
 where the real growth in our economy is. How many more McDonalds can you open in Dallas? How
 many more Gaps does New York need? (They just closed one down across the road from my apartment.
 The store couldn't make it. There are four others within one mile. And frankly, I've bought ever piece of
 Gap clothes I'll need for the rest of my life. I have enough khaki pants to dress half of Africa.)

 Be diversified within technology. Technology is a continuum. At one end are solid manufacturing
 companies with solid profits, such as Cisco, Texas Instruments, IBM, etc.

 At the other end are the totally speculative dot.com retailers (the business to consumer guys) and sites
 that could never figure where their revenues would come from (drkoop.com, about.com, etc.) and the
 free Internet music companies -- ARTISTdirect (ARTD), NetRadio (NETR), CDNow (CDNW) and MP3
 (MPPP). 

 Too many junk "technology" and junk Internet companies "e-tailers" have been financed in recent years.
 Most of these companies are already down 90% and more. And deservedly so. We've never written about
 them in the magazine -- and we never will, except in jest. (I love our Closing Bid section at the back of
 the magazine.)

 In short, you can't lump technology into one basket. It's too big and too complex for that. That is an
 important theme of our magazine.

 That is why we publish so many portfolios of technology stocks and technology mutual funds and why
 we label them -- core, speculative, ultra-speculative, etc. It's also why we focus on "Voyages of
 Discovery," so we can introduce you to more and more interesting, solid technology with a serious
 future. And there's plenty of it around.

 Be in the right industry sectors. This is not rocket science. As you check out technology stocks, ask
 yourself: Will I buy this company's product. Does it make sense? In the June issue, we have a
 "Telefonica Exotica" portfolio. They make sense. Overseas telecom carriers are booming.

 Technology is no different to any other product. If you enjoy your new DVD player or your new
 GPS-equipped car, others will also. You're not unique.

 Reality and logic count. The technology stocks hit hardest in the last few weeks have been flying high on
 heavy fantasy.

 When the stock hits $170 and the first product is three years away, you're on thin ice. Logic must
 eventually prevail. These days it prevails very quickly.

 Disappointments are death. Watch for them. Miss EPS by a penny. Miss sales by a fraction. Bingo, the
 selling is merciless. Get out fast. Do not hold a broken stock. I sold my few remaining shares of RIMM
 a few days ago, saving myself the agony of watching it fall further today. It deserved better than its
 recent 77% decline. But it didn't get it, because today's market is merciless on disappointments, no
 matter how small.

 Finally, don't watch TV. It only heightens your agita. TV reporters have no idea what's going on, nor
 why. No one really does, of course. My nine points above are my guess. I spoke to a zillion people in the
 last few days. But this article is my best guess. My reasons make sense to me. I will act on them with my
 own money. I have bought and will be buying again this week.

 TV reporters' job is not to explain, or to reassure. Their job is to keep you watching. They do this by
 boiling your emotions. Disasters are great for TV. Viewership goes up. They sell more ads.

 Best of all, the stock market is cheap to cover. You don't have to send expensive camera crews to distant
 forlorn places. Every day CNBC and CNNfn get dozens of phone calls from Wall Street firms
 presenting their "gurus" as knowledgeable "talking heads." Get yourself a PR firm. You too can get on
 TV. 

 For me, I'm trying to protect my and your portfolios with the best advice I can muster. Stay tuned to this
 page and to the magazine. This coming week will be better, promise.

 Email me on Harry_Newton@TechnologyInvestor.com with your thoughts.

 p.s. Of the six equity portfolios that we publish every month in our magazine, two are still up. Takeover
 Candidates are up 19.2% this year to April 14. The Aggressive Portfolio is up 9.5%.