Back in the mid-1980s, when I ran the New York Marathon every fall, I did daily training runs along Manhattan's East River and often bumped into a guy named Peter who taught at

Stuyvesant High School

in New York.

Although he worked as a teacher, Peter had built up a big nest egg by trading in

Wendy's

(WEN) - Get Report

stock. He knew the company inside and out, and he bought it when market sentiment ran against it, sold when investors loved the stock.

I liked Peter, but thought him a crackpot as an investor. His method made about as much sense to me as investing based on astrological signs. Today I think differently, though. Peter took advantage of market inefficiencies -- investor tendencies to overestimate and underestimate one particular stock. And he made enough money to pay cash for a house on the ocean.

Still Bullish on Qualcomm

Today I'm following in Peter's footsteps. But my stock is

Qualcomm

(QCOM) - Get Report

. Now, I know my colleague

Jim Jubak

doesn't share my enthusiasm. He never has. We've disagreed about Qualcomm from the word go, with Jim arguing that the management can be duplicitous, me that the technology is overwhelming.

So Jim, I bought 100 shares of Qualcomm at $64 on June 19 because investors like you have turned against it. And I'll challenge you to a contest. You pick any other stock, and let's see which one has the best total return 12 months from now. If your stock wins, I'll buy you a fancy new code-division multiple access, or CDMA, cell phone. If I win, you buy me two shares of Qualcomm, split-adjusted from the entry point.

Jim didn't like Qualcomm when I bought 100 shares at the end of 1998 for $51, or an investment of $5,100. At the time, I didn't think investors appreciated the CDMA technology that Qualcomm had developed for cell phones.

Of course, Qualcomm turned out to be the investment story of 1999. After it split in May, I sold 50 shares at $102.50. I sold another 25 shares at $399.94 in November. Then it split 4-for-1. I sold 200 shares at $155.25 on Jan. 21 and another 200 shares at $154.6875 on March 27, leaving me with 100 shares worth more than my original investment and about $77,000 in realized profits.

Whipped by Sentiment

I see Qualcomm the way Peter saw Wendy's -- a classic example of a solid company that is whipped around by market sentiment. When I first bought it, CDMA was not recognized as the superior wireless technology that I think it is. Then, as the stock took off, investors wildly overestimated the value of Qualcomm. While I was spending New Year's Eve in New York's Adirondack Mountains last year, I read that some analyst predicted the stock would go to $1,000 a share. Ridiculous.

Some of the exuberance about Qualcomm had to do with expectations about the role the company would play in the developing communications network in China. In recent weeks, the Chinese market has grown murky, with some analysts saying that CDMA will never play a role in China.

At the same time, a ruling by the Korean government to eliminate handset subsidies will likely result in a slowdown there -- a major market for Qualcomm. As a result, analysts at

Chase H&Q

came out with a really dismal report on June 15 with the headline "No Positive News in Sight," lowering their estimate for Qualcomm to $50.

Easy to see how a report like that could knock the stuffing out of a stock. Remember that a lot of people buy stock based on the stories they've heard about how it's gone up. They have no clue about how it might perform in the future, and may not even know what the company does! Suppose you'd bought Qualcomm for $180 in January, at the height of the market exuberance, and now you read that it was headed for $50. You'd probably panic and sell.

Look Under the Rug

But as investors, we need to look under the rug and see what's going on here. China is the biggest market in the world. The Chinese would be foolish to give it away on a platter. They're being coy. They want companies to jump through some hoops -- to put up factories in China, to commit to doing deals -- before they hand off a piece of the action.

Qualcomm has not been eager to sign on for this. It is no longer a manufacturing company and it cannot build a Chinese factory to make handsets, for example. But Qualcomm must offer something to the Chinese government. That's business when it's intertwined with politics. And I think the company recognizes that. We shouldn't write China off as a CDMA customer at this point.

What many investors still don't understand about Qualcomm is that it has totally restructured its business. Qualcomm is out of the infrastructure business. It's out of the handset business. It spun off

LEAP Networks

, its overseas development arm, which required a good deal of capital for a low-margin business.

Now Qualcomm is in the royalty business, collecting royalties on every phone that uses CDMA technology -- and that is one heck of a business.

Warren Buffett

once said the ideal business is a toll road. This comes pretty close. Further, the company has no debt to trip it up. The time to buy is when other folks don't see it that way.

Now I'm going to add a caveat here because I feel that I've argued so strongly for my position -- something that a journalist is trained not to do. When you read this, please don't be influenced by my past profits in the stock. Make up your own mind. Today, Jim Jubak and I have the same information. One of us is wrong.

Question of the Week

This from a 25-year-old newlywed dentist named Camden who wants to get started on the right foot as an investor. When he asked a stockbroker about the best investment for a young couple, the broker suggested life insurance.

My advice is this: When you ask an adviser for an investment and he suggests life insurance, head for the door without even shaking hands or saying goodbye. Of course, there are good reasons to have life insurance. In fact, our dentist said he has a good deal of it.

The thing is, though, life insurance is

not

an investment. It is insurance. But many insurance agents just can't get that straight, and whatever the question is, the answer, to them, is life insurance. Don't buy it.

Follow Mary's Start Investing Portfolio at MoneyCentral.

Mary Rowland is the Start Investing columnist for MSN MoneyCentral. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She welcomes your feedback at

mctsc@microsoft.com.

At the time of publication, Mary Rowland owned or controlled shares in the following equities mentioned in this column: Qualcomm.

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