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To: Les H who wrote (4869)	1/17/2003 12:43:59 PM
From: Softechie	Respond to of 29594

Tech Fixation Shows No Sign of Slowing By Paul Kedrosky 01/17/2003 10:12 Why won't we all just be quiet about technology stocks? It would be better if we would. Because history bears out that overexposed sectors rarely return to health again until they recede from our collective conscious to a position roughly equivalent to market importance. A case in point: Perhaps you, like me, felt that the last few days have been All Intel , All the Time. RealMoney columnist Helene Meisler suggested as much recently, and it certainly feels as if investors are as fixated on technology earnings as ever. Bust, what bust? The technology regime rules! Measure the Media But does it? To answer the question, we need to measure tech fixation. While there is no direct indicator, no thermometer we can insert onto trading floors or chat rooms to measure it, a convenient proxy measure is to use metadata to find out how fixated the media are on technology. After all, the media are just an extension of our collected interests -- its fixations are our fixations. I went back and looked at media mentions of Intel's earnings from 1994 to 2003. Every year, I examined the two-week period following Intel's fourth-quarter earnings report. In that post-announcement period, I used a software program to count the number of stories in major newspapers around the world that mentioned Intel's earnings. Then I normalized those mentions based on the number of stories in the same periods that were about earnings in general. After all, you wouldn't want to get fooled by not knowing that newspapers were just writing a lot more about equity earnings. The results are shown in the following chart. The blue line is a normalized measure of how pervasive the media mentions were of Intel's fourth-quarter earnings each year. A higher number in the left column meant that it was more likely that newspaper stories about earnings made specific mention of Intel's earnings. And just for entertainment value, I superimposed the Nasdaq Composite Index over the same period. Obsession With Tech? Judging by the data, we're as fixated on tech, at least as measured by Intel's earnings, as ever. Far from declining in line with the decreasing importance of technology in the broader markets, focus on Intel's earnings is hitting highs. The Nasdaq's decline passed with scarcely a blip, and the fixation marches on. While this year's absurdly high index reading is partly a reflection of the short time that has elapsed since Intel's earnings, and I'd expect the measure to settle down somewhat, it will still settle at record high levels. Remembering When This will pass -- eventually. Recall, for example, how overexposed companies, such as Xerox , Kodak and other Nifty Fifty stocks, were in their day. Now, however, they've slipped back to a position where they are seen as what they are -- large companies whose every move isn't newsworthy for the entire market. That's partly a reflection of changing growth prospects, but it's also a reflection of an investor infatuation that ran its course. So far, however, technology shows no sign of going into quiet retirement. Why not? It is partly investor eagerness not to miss the next move in a sector that made (and lost) so many so much money. That eagerness means technology equities persist in perceived importance, despite the maturation of its players and its decreasing real importance in market indices. But this is also a sociological phenomenon rooted in complex, self-reinforcing systems. Various studies have shown that once an idea or issue passes a critical level in the collective consciousness, it tends to become "sticky." In other words, it creates a new regime where the issue has ongoing prominence out of proportion to its actual importance (in the financial markets, arguably to the point of supporting inordinately high valuations). You can pick your example, from Joey Buttafuoco to technology stocks, but the effect is the same -- you can't avoid some things, long past the point where they don't matter (as much) anymore. So, while technology is an ever-shrinking percentage of the S&P 500 , it still has a surprisingly large place in our collective consciousness. If and when that changes, the market will be a much healthier place, so it is an indicator worth tracking.