Chuck, This is my first post here. This looks like a good thread. Let me throw out some thoughts on the market and tech stocks. Sorry if all this has been addressed before.
It seems to me that we are at a very crucial period in the history of the US stock market. If one can make the right moves here, I think it could pay off big, either by large gains, or by avoiding further losses.
One view says that this whole technology thing (i.e. internet, wireless, bandwidth/fiber optics) was a huge bubble. The bears go on to point to previous bubbles, and some say it will be 10 years for the Nasdaq to make a new high, and chart comparisons are made to the Japanese market and the crash in 1929 (e.g. yesterday's WSJ). Also, according to some, the Nasdaq may go as low as 1,000 before bottoming. One factor is that individual investors may pull out of mutual funds, especially techs, forcing fund managers to sell. And finally, on a short term basis, the market may go down from here due to selling for income tax payments. If you follow all this logic further, it really means that the U.S.A. is going to into a long period of stagnation, since technology has been the main growth engine in our economy. This will of course affect more than just those in the high tech industry.
However, the bullish argument states that although there was a valuation bubble, particularly in internet stocks, the future looks bright here for not only technology investors, but the whole country. This view states that the current market condition is due to a combination of things. These include a healthy market multiple correction, the effects of a recession (at least in manufacturing), the fact that the Fed raised too much last year and is acting too slow now, the inventory buildup in the telcom business, and the misguided views of market experts, which helped create the price bubble (e.g. view that techs are not cyclical, view that techs are not affected by interest rates, inexperience and irrational exuberance on the part of analysts with all those strong buys at the peak, etc.). According to this bullish view, the bearishness level is very high now (e.g. yesterday's Barrons, and other sources - contrary indicator of course), the prices are now cheap for many tech stocks, and we are still in the middle of a great era of prosperity and innovation which will last for at least 5 years. Part of this view is the "Roaring 2000's" argument about demographics and the great benefit from the internet (compared to the assembly line of the roaring 20's). Some, in fact have said the internet is the greatest invention since the printing press. There is certainly a great synergy effect to the internet, and most will agree that it is still in its infancy. There is also an argument to be made that the internet is a more significant invention than previous ones which caused market booms. And finally, many have argued in the past that fiber optics, bandwidth, and wireless are solid areas of technology (unlike the dotcoms) that will experience great growth ahead as the world moves towards high bandwidth and also mobile communication. Regarding bandwidth, predictions are for a huge increase in the next 5 years due to the deployment of fiber optic technology that will occur in many regions of the world.
As for my own view, I am sort of a beaten down bull. I think the bears could be right, but my gut feeling is that this whole thing is probably overdone, and we will look back some day and see the current moment as a great buying opportunity. I see a chain reaction effect here that could go either way. My optimism hinges on the view that the consumer will continue to spend, the Fed will continue to cut, the inventory correction will occur sooner than expected, and that Wall Street will soon see tech valuations in a more favorable light. Also, for the bears, I should note that there is an argument that not only is the Nasdaq still overpriced here, but so is the Dow and S&P 500, and that all three could fall about 50% from here (view expressed by a market guru on CNBC, and at least one other prominent bear). So, just being a non-tech guy at this point might not save you. Part of my bullishness on technology is my view that many of these stocks seem cheap relative to non-techs here, so if one is in the right stocks going forward, there could be considerable gains.
As a final note, I did some very simple calculations (please check my numbers and approach before using any of this) in a recent post which argues that some techs seem cheap now relative to the non-techs, if I did my analysis correctly. I just picked a few stocks that have some familiarity with. I am trying to identify great buys in tech stocks at this point, and this is just a simple attempt. Here is the link to my post:
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This post turned out to be a bit long, but hopefully it will help the discussion. Any ideas or comments are welcome. Perhaps collectively we can figure out some of the answers at this critical point in time.
Good luck to all.
John |
