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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: sandeep who wrote (47613)	5/25/2000 4:48:00 PM
From: Harvey Allen	Respond to of 94695

Tech slide taught lessons, says FleetBoston's O'Neill By Steven Syre and Charles Stein, Globe Staff, 5/25/2000 You have to say this for Thomas O'Neill: He's been consistent. All through last year's incredible run-up in technology stocks, O'Neill was skeptical. The chief investment officer at FleetBoston Financial Corp. couldn't understand why the stocks were soaring. He said it didn't make any sense, and he said it couldn't last. Now that the Nasdaq Composite index has dropped 37 percent from its peak, and some tech stocks are down more like 80 percent, it looks as if O'Neill's fears were on target. We spoke with him yesterday to get his take on what has happened so far and what might lie ahead. Boston Capital: What made you so suspicious about the whole tech rally? O'Neill: I was suspicious because the market had thrown out all the fundamental tenets I learned about investing. People were engaging in the most speculative form of investing, price momentum. People were buying stocks because stocks were going up. It was like a chain letter. And the professionals were telling you that they didn't believe the valuations but that tech investing was the only thing that was working. Boston Capital: Do you think investors were just caught up in the excitement of the technology itself? O'Neill: Tech investing has always been a game of high-speed chicken. That's its history. New technology makes old technology obsolete. Over time all of the value created by technology stocks has been created by 10 to 15 percent of the companies. The other 80 percent add nothing. Capitalism is tough; the weak die. Boston Capital: How far out of whack were stock prices at the peak this March? O'Neill: This was the biggest bout of speculative fever we've witnessed in the past 100 years. There has never been a market as speculative as the one we have just been through. Based on most measures of valuation, this market was more than twice as extreme as the Nifty Fifty market of the early 1970s. Boston Capital: Do you think the fever has broken? O'Neill: The fever has broken. More than that, I don't think in my lifetime we will ever again see the level of speculation we have just seen. All people were looking at was the reward. There was no analysis of risk. And guys like us were regarded as fuddy-duddies for stressing fundamentals. Boston Capital: And now? O'Neill: Now we have reintroduced risk to the equation. Now if someone is pushing one of these ''story'' stocks, investors are going to ask: What does the company do? Whom do they compete with? When will they earn money? Once you ask those questions, you can't get to the crazy valuations we have witnessed. Boston Capital: A while back you predicted that the big tech stocks like Cisco Systems and Oracle Corp. would be the last to fall. Was that inevitable? O'Neill: Don't get me wrong. These are great companies. But they had reached prices where it was hard for an investor to make any returns. These stocks could still have room to contract more or they could stay in a trading range. If you look at history, once stocks like IBM and McDonald's reached a certain point there was so much good news already discounted by the market that the stocks never moved. And, God forbid, one of these companies should experience a slowdown in their fundamentals, and believe me, some of them will. Then prices could fall dramatically. Boston Capital: While you were shaking your head at the new economy stocks you were recommending old economy stocks? Are you still? O'Neill. Yes. During the tech craze you got the impression we were all just going to be sitting around nude staring at our computer screens all day. It was as if we were never going to eat or get dressed again. There are still many companies in the real economy that sell at attractive valuations. Boston Capital: Such as? O'Neill: TJX is a great off-price retailer. At 10 times earnings it is priced very attractively. This bank (FleetBoston) is another. Everest Reinsurance is another. There are companies in finance, retailing, and health care that are good buys if you do your homework. Boston Capital: You must be assuming we are not about to go into a recession? O'Neill: That's right. I am making the assumption that the world isn't going to be ending. I think the Fed is getting near to the end of its tightening. Greenspan is a gradualist, and we are in an election year. Often times, the second half of an election year is a positive period for the market. digitalmass.com