Time for another quarterly update on the
25 Winners for 1999 column that appeared here at the beginning of the year. (A first-quarter
update was posted in April.) I was going to skip this midyear review, but from the flood of emails I've gotten from
readers on this over the past couple of weeks, many asking for private previews of my midyear update --
-- it's clear there's still a lot of interest in this list.
I avoid calling it a portfolio because it wasn't a recommended buy list; it was more a list of stocks I thought would illustrate some of the factors involved in investing in technology stocks now. Among those factors: sometimes-extreme volatility, the Wobble Factor, unexpected and sometimes irrational moves, and timing and the importance of alliances, acquisitions and splits in driving portfolio increases.
Overall, the list has done well; it's up a net 46.1% on a dollar-weighted basis since Jan. 1 (all performances are through Tuesday, July 6), a very respectable performance during a period when the
was up 21.3%; the
, 24.8%; the
, 8.2%; and the
Twenty-three of my 25 stocks are up, some very well indeed, but their performances vary wildly, and the discrepancies between what conventional wisdom expected and what has really happened are great. Here's a rundown of some of the stocks on the list that illustrate my points.
, for example, finally broke out of the trading range (boy, I hate that dumb term) that it had been stuck in since January. I'll take a nickel any place I can make one, but this breakout was not exactly rational behavior by the market. Cisco remains, in
of the market," and in a well-behaved marketplace would have climbed steadily through this six-month period. Sometimes great tech stocks are like that: stuck on high center for months, then a breakout for less-than-obvious reasons ... or for no particular reason at all. Stocks like Cisco show either -- your choice -- (a) the importance of staying invested in the companies you believe will outperform the market over a fixed time horizon to even out the wobbles and volatility, or (b) following market news so carefully that you spot the first uptick that will break a company out of that narrow range. (Hint: The latter task is nearly impossible; (a) was the right answer.)
Then there are those companies which, despite great performance over time, just get stuck ... and stuck ... and stuck -- what I call the Wobble Factor, which I like a lot better than "trading range" to describe stock prices that bounce, apparently meaninglessly, in a narrow range.
, for example, is sitting (on a split-adjusted basis; all prices here are split-adjusted) almost exactly where it was on Jan. 4, the first trading day of the year. That's been a shock to the legions of Dellionaires who've watched with glee as the stock has split seven times since January 1992, creating an enormous amount of wealth for Dell's true believers. (Of which I'm one, by the way: this has been a fabulous wealth-creation engine.) But so far this year, the magic is missing.
I see better times ahead for Dell, if somewhat less than the Atlas-rocket growth of the past, but probably not until the first quarter of 2000. Until then, money in Dell is likely to stay pretty cold.
But Dell's a great example of the importance of splits in growing your portfolio. Tech stocks are today built on the premise of regular splits, and none shows this better than Dell. But you've gotta have a rising price to split.
Another tech stock in my list of 25 winners,
, has behaved much like Dell. After a 2-for-1 split Feb. 17, it didn't start what many today consider to be a relentless and inevitable climb back up after a split, but has just sputtered. Here, I expect a big kick late this summer or early fall, as
, Merck's expensive but high-value replacement for aspirin for arthritis sufferers, starts to take off. Reports from the field suggest the competition for Vioxx,
, distributed by
for its creator
, hasn't taken off and blocked Vioxx from a major market share, as some had predicted. Yes, Merck's been a great example of the Wobble Factor, but I expect to see it break out of that pattern soon.
Elsewhere in my tech picks,
illustrates the importance of timing in buying tech stocks. If you got in back in February, when Amazon traded below 100, you've done well, given its close Friday at 124. But if you bought in late April, when it was trading over 200, you've gotten killed. (Ain't hindsight great?)
: If you jumped in at the April frenzy (should I call it the Excitement?), when it nearly hit 100, you weren't a very happy camper at Friday's close, around 55. If you'd been in since the first of the year, when Excite@Home traded below 40, you're a lot happier. (And if you jumped in last fall, in the teens, you're obviously a genius.)
Extreme volatility and the importance of timing in buying tech stocks -- in a sense, two sides of the same coin -- are part of the game. Tech investing is not easy.
Repeat: Tech investing is not easy
-- no matter what the
guests say. (Why do you think venture capitalists are so often called adventure capitalists?)
. Oh, Qwest. When a CEO outgrows a company's business plan, things can go Seriously Wrong. Qwest's Joe Nacchio, about whom I have written often here, wanted to play in the Bigs, with the RBOCs, and so made an offer, then another, for
U S West
and also one for
. As you no doubt know, he's been rebuffed at both places and subsequently improved the terms of his offers; now both companies are expected to meet with Qwest management soon to talk. But not necessarily, remember, to say yes.
Qwest (which I am long) was a high-growth company, but now seems determined to wed itself to lower-growth companies its own size or bigger, which does not sound smart in terms of future growth rates. Beats me.
Qwest has simply gotten off the track and in a wholly unpredictable way. That's another characteristic of technology companies: getting blindsided by the unanticipated event, by what a friend of mine calls "the snowball from hell."
If you're a Qwest holder and really want some heartburn, go to
Tools section and overlay Qwest on
, another of my picks and Qwest's opponent in the fight for U S West and Frontier. Though both have been battered since
began, look how much better Global Crossing has done overall since the first of the year, or even for the past 12 months. Ouch.
For another touch of masochism, look at the results since the first of the year for
, also one of my 25 picks, which has been buffeted by rumors and misinterpreted announcements from competitors twice in this half-year. In April, Aware holders panicked when they learned that Cisco had added another supplier to its DSL-chipset suppliers. Not
Aware, mind you, just added another supplier, for a different product line.
, Aware went through the floor, from 68 to 46 over a weekend. In early June, Aware had another chunk taken out of its hide by an announcement from
that it was bringing out a high-performance DSL chipset.
Aware (which I am also long) still looks good to me, mostly because I'm convinced the ADSL market's going to be huge, and Aware has the right products and the right partners to win big there. Again, the importance of the right alliances and partnerships.
But it sure has a lot of climbing to do to get back to April 13's 79 from Friday's close at 46. On the other hand, if you bought Aware on Jan. 4 at 26, Friday's 46 looks mighty good. Again, the story of tech investing: extreme volatility, unexpected and sometimes irrational moves and timing. And lots of Maalox.
Even "safe" tech/Net picks such as
, both on the list and each up substantially, have shown this year good performance, frightening volatility and the importance of holding through dips.
To offer comparisons with bricks-and-mortar, "old economy" investments, I included in my list a half-dozen best-of-breed nontech companies I thought would do well this year:
(I am long both Wal-Mart and Gap),
. Most have done well, Gap especially, but on average, despite their blue-ribbon standing, they haven't come close to managing tech stocks' performance this year. Brookstone, included as a play on the expectation that it would finally this get its act together on the Web, has lost about 10% of its value since the first of the year.
More important, as more traditional holdings, they have in general not suffered the extreme volatility or the Wobble Factor of techs, nor have they shown great sensitivity to striking the right partnerships, timing, unexpected and sometimes irrational moves and the importance of alliances, acquisitions and splits in pricing of the techs.
I hope this second review of the list of 25 winners has continued its purpose of pointing out some of the characteristics of tech stocks that make investing in tech stocks, broadly defined, different from and both scarier and more rewarding than playing it down the middle with the
-- good companies all, but with neither the risks nor the rewards of tech investing.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At time of publication, Seymour was long Aware, Gap, Qwest and Wal-Mart, although positions can change at any time. Seymour does not write about companies that are consulting clients of Seymour Group, or have been in recent years. While Seymour cannot provide investment advice or recommendations, he invites your feedback at