TCS Daily

My First Semester Report Card

By James K. Glassman - July 11, 2001 12:00 AM

Glassman Stocks Up 8.7 Percent, Nasdaq Stocks Down 21.7 Percent

As regular readers know, I believe that stocks are for the long term. If your time horizon is measured in months, you should be investing exclusively in bonds, not stocks. In fact, if your time horizon is anything less than five years, you should still keep close to half of your portfolio in bonds, and the majority of your money in a diversified basket of stocks. It's only over the long run that you can depend on stocks to really shine.

I also understand that readers want some benchmarks along the way to help them evaluate the quality of information. And it has become the convention for financial journalists to report the results of their suggestions, just as mutual fund companies do. So it's time to review the stock market performance of the companies I mentioned in this column during the first six months of 2001. For the purposes of this report card, I assume that an investor put an equal amount of money into each company, each time I mentioned it favorably in a column. It's not my habit to recommend selling stocks, but since I wrote a negative column about on February 5, I counted that as a sale on that date, following the theoretical buy triggered by a favorable mention in my column of January 22.

Speaking of January 22, that was the posting date of my first TCS investing column of the year, so I'm grading my tech-stock suggestions against the performance of the NASDAQ composite since that day. From the close on January 22 through the end of trading on Friday, June 29, the NASDAQ lost 21.7 percent of its value. Meanwhile, the companies I mentioned favorably gained 8.7 percent from the time I named them until the end of the period. I should reiterate that short-term returns aren't important - it's the long run that counts, and of all the investing virtues, the greatest is patience. The fact that the Glassman companies beat the NASDAQ by 30 percentage points may not matter at all over the long haul, but if this short-term record encourages you to save and invest more money in stocks for the long run, then it's all to the good.

The year surely didn't start well. Almost all of the companies in that January 22 column were crushed by the market over the succeeding months. The worst of the worst was Commerce One, whose shares lost more than 78 percent of their value through June. Investors in Yahoo! also took a pounding, losing more than 40 percent of their money. Owners of Siebel Systems were hit almost as hard. But within that column lay a valuable lesson for investors - early losses are no reason to abandon equity investing. The best was yet to come.

Columns in subsequent weeks highlighted chipmaker Nvidia, which went on to rack up a sizzling 73 percent gain, and a number of biotech winners, courtesy of US Bancorp Piper Jaffray's savvy Mark Augustine. Augustine's recommendations included infection-fighter XOMA, which increased almost 90 percent in market value during the period.

The biggest winner of the period appeared in my column of March 5. From the close on that day until the end of June, Serena Software returned an amazing 157 percent -- more than enough to balance out the stinker I mentioned three weeks later. Shares in Molecular Devices Corp. lost almost 56 percent of their value in just three short months. Which brings us to another valuable investing lesson - diversification matters. If you bet on just one stock, that's exactly what you're doing - gambling. But if you invest in a large, diverse group of stocks, history says that you can be almost certain to achieve double-digit returns over time. To be truly diversified of course, technology stocks should be just a fraction of your portfolio. You might find this column useful in evaluating that portion of your holdings.

The March 5 column had another lesson to offer - very often the best stocks to own aren't the big brand names, but the more obscure, overlooked firms. Sometimes there's value in the smaller companies that most investors miss. No other company I mentioned delivered returns like Serena Software, but companies like Carreker and Microchip Technology were strong performers. Webtrends, which I mentioned, recently merged with netIQ, and the combined company (symbol: NTIQ) appears to have a bright future.

All in all, not a bad report card for the semester. But just like a college education only represents preparation for the long run... well, you get the idea. 

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