TCS Daily

Learning from the money masters

By James K. Glassman - April 9, 2001 12:00 AM

Last week I noted in this space that while many Internet companies have crashed and burned, the Internet itself is soaring to new heights. Some 100 million new users worldwide are coming online each year, e-mail traffic continues to explode, and people and companies continue to find new ways to use this amazing medium.

Therefore, despite the NASDAQ pain of the last year, I'm bullish on the future of the information technology industry. Given that the vast majority of the world's people still have never used a web browser, I see the U.S. tech industry as a growth opportunity, not a mature business with its best days behind it.

And many of history's greatest money managers agree that a growing industry is a great place to make successful investments. John Train's new book, Money Masters of Our Time, has other important lessons that are relevant to today's tech markets. Train, a best-selling financial author and accomplished money manager in his own right, profiles the strategies of some of the greatest investors of recent times.

From Warren Buffett to Peter Lynch, and from John Templeton to T. Rowe Price, you'll find a range of opinion on how to value a share of stock. Some focus on the price relative to book value, others on the rate of earnings growth, while many make judgments about the quality of the company's products.

Still, there are a few things on which most of the stars of money management can agree: It's great to buy into a growing industry; it's great to buy when a company or a whole industry is out of favor with most investors, and it's great to own companies that aren't burdened with heavy government regulation.

I believe that America's tech industry scores on all three counts. The use of the Internet continues to boom, and tech stocks are certainly falling out of favor. Obviously the share prices tell the story, and a report last Friday from Banc of America Securities confirms it. More money has been flowing out of tech mutual funds than has been flowing into these funds for nine consecutive weeks. Last week, investors pulled a net of $270 million out of technology funds.

As for political factors, regular fans of this site know that I've been warning about government encroachment into the tech industry, and, in fact, I believe that government intervention had a lot to do with the tech wreck of 2000. But the tech industry still does not shoulder the oppressive regulatory burden of, say, the oil industry. Nor do tech products have to go through anything like the approval process required for new medicines or medical devices. Among leading American industries, computer hardware and software makers still have some room to operate free of bureaucratic restrictions.

So technology offers an exciting future, stocks that have been losing recent popularity contests, and an industry that enjoys the relative neglect of bureaucrats. I should warn you that many of the all-stars in Train's book would probably say that tech stocks are still overvalued, but I think many would also agree that growth prospects and light regulation bode well for tech investors.

One way to invest in a number of tech firms that have fallen out of favor is to buy shares in Merrill Lynch's Broadband HOLDRs (ticker symbol: BDH). By buying shares in BDH, you own pieces of a number of companies that make critical pieces of high-speed digital networks and are now selling far below their highs. Included in this group are two good companies, Lucent (LU) and Motorola (MOT), which have recently had to knock down bankruptcy rumors. The odds are pretty good that these firms will survive, and bold investors stand to benefit from a turnaround.

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