The Keys to Success in a Post-Tech World By Thomas Kurlak Special to TheStreet.com 4/6/01 8:15 AM ET

Note: With this column, we introduce Tom Kurlak, the senior semiconductor industry analyst for Merrill Lynch. Kurlak was ranked for 19 consecutive years on the Institutional Investor magazine All-Star Team until he left Merrill in February 1999.

In case you don't know me, I recently retired after 20 years on the sell side as a semiconductor analyst for Merrill Lynch, and a brief stint as a technology hedge fund manager for Tiger Management. You may remember me for some of my "controversial" calls on Intel (INTC:Nasdaq - news - boards) over the years. After three months of observing the investment scene from afar, I was asked by TheStreet.com to share some of my thoughts on investing in today's turbulent markets.

When I left Tiger in December, my parting recommendation was that 2001 would be the year of anti-tech. That's a not-too-surprising suggestion given how tech stocks exited in 2000, but certainly the extent of the meltdown has been a surprise to many. And for many young technology analysts, the experience will be the crucible that forges more perceptive analysis, more questioning of management "guidance" and more humility before issuing a new buy recommendation with their name on it.

The cult that developed around tech stock investing between 1995 and 2000 was without precedent. We have seen other periods of blind faith in the growth of other groups of stocks -- such as oil in the early 1980s, or the Nifty Fifty in the early 1970s -- but this period was off the chart.

The really religious of this cult went for the dot-coms with an evangelical belief in future profits that had as its foundation the successes of known megastars such as Intel, Microsoft (MSFT:Nasdaq - news - boards) and Cisco (CSCO:Nasdaq - news - boards). Tech investors, led by the preaching of Wall Street gurus, believed (or wanted to believe) that they had found a better way, a way to investment profits where all you had to do was place faith in an idea. The market would do all the work for you; it would value the future now.

It was not unlike the oil boom of the early 1980s: When oil and gas stocks reached their peaks, they represented nearly the same 40% of the S&P 500 that tech reached last year. Basic valuation concepts were abandoned, replaced by measures of reserves in the ground and barrels per share, much like page views came to measure the dot-coms.

But when the dot-com profits failed to materialize, the followers fled. And a lot of that money moved into the tech megastars, where investors thought they could see "real" profits and a record of predictability that allowed them to rest easier -- and hopefully recoup their Internet losses. Not coincidentally, five months after the dot-com peak, Intel, with the help of recycled tech money, hit its all-time high of $75, in August 2000.

But the market hadn't seen what the wrath of jilted tech investors could do until the megastars disappointed. Blind faith leads to blind fury when the basic tenets of a belief are dashed. For the past seven months, the market has witnessed the destruction of an investment cult that allowed itself to believe that technology was a fountain of wealth, where, once you abandoned old beliefs about valuation, you could realize unlimited fortune.

Find out what replaces the obsession with technology in Part 2.

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