"Just throw your hands up in the air.
And party hardy like you just don't care."
-- The Sugarhill Gang
SAN FRANCISCO -- In the age of Internet, it pays to be a bit of a fool.
That was the resounding message of four bemused money managers who presided over one of the most popular sessions of the
Hambrecht & Quist Annual Technology Conference
: "Views from the Buyside." All of the buysiders on the panel groped to explain the engine that's powering one of the greatest bull markets in the history of capitalism: The Internet.
To start off his spiel, Roger McNamee, a partner with
Integral Capital Management
, quoted one of Wall Street's leading prognosticators, Barton Biggs. "Only the fools are dancing," said McNamee, "but the bigger fools are watching." Biggs himself said the quip was a popular saying during the Japanese bull market of the late 1980s.
After admitting that rationality plays no rule in this market, McNamee then offered three rules for investing in the Internet era. Rule one: $50 a share is cheap. Rule two: $150 a share is fairly valued. Rule three: $200 a share is cheap again because it means that a stock is set for a 4-for-1 split.
"I figured out about a year ago that working and thinking only hurt my performance," joked McNamee. So he relaxed and watched his portfolio soar to the heavens.
"Everything we learned in business school is wrong," said McNamee. "Even the stuff we learned in our accounting class is wrong." Indeed, during the hour-long discussion, the four investors barely bothered to reference such hoary valuation measures as price-to-earnings ratios. Nevertheless, most of the panelists shared their investment strategies with the audience.
Steve Demirjian said he concentrates on infrastructure plays such as
. "It's a war and we're trying to find the companies that supply the arms," he said.
The sole foreign participant on the panel, Duncan Byatt of
Eagle and Dominion Asset Management
, seemed to embarrass himself by larding his talk with sexual innuendo and several anecdotes that hit many as sexist. "That British guy explains why I feel Europe is too parochial," quipped one managing director of a U.K.-based VC fund.
Colin McNay, who was bullish on bandwidth stocks such as
, urged investors to not shy away from the high valuations of the .coms. "You're ill-advised not to be overweighted in some of the big brand Internet stocks," said McNay, who also said he was jazzed about the companies that stand to benefit from the sub-PC Net access market.
McNay then grumbled about quick-flipping retail investors. "All my time is spent huddling with managements trying to understand their business, but the real action is on the floor of the daytrading shops," said McNay. His recommended trading technique: "Put your hands on the PC screen," and "feel the pulse of the market." Pile into a stock, then unload it after a five-minute ride. "Bingo! You've lost your shirt again. That's okay, there's always tomorrow."
It was such profit-taking from daytraders that led to Wednesday's drop in Internet stocks.
TheStreet.com Internet Index
fell 5.6% to 658.
"When will the party end?" asks Demirjian. "Last Monday felt like the equivalent of the police showing up and telling us to keep it down. But we shut the door and kept drinking."
For his part, McNamee admits that he fears of waking up one morning to realize that the raging bull was the stuff that dreams were made of. But until then, he said, "I'm gonna be a fool and keep on dancing."
-- Spencer E. Ante
TranSwitched and Turned On
A 16% drop in his company's stock price since April 6 doesn't faze Mike Stauff, CFO of communications chipmaker
. "The visibility has never been better," he told
in the hallway before his presentation.
TranSwitch makes chips for telecommunications networks. It's a booming market with long product life cycles. If TranSwitch gets its chips today into a new telecom product, it will ensure itself revenue for at least five years, Stauff said.
Since last autumn, TranSwitch has been one of the
fast-growing semiconductor stocks. And even with the recent drop, a closing price of 41 7/8 is still a 150% increase over seven months.
Not only is the overall market for TranSwitch's products growing, but companies such as
that used to make their own chips are contracting out the work. Two years ago, TranSwitch did no business with Lucent. But last year Lucent sales accounted for 5% of revenue. In the first quarter of this year, that portion went up to 10%, helping to boost total revenue in the quarter 68% year over year.
"We have established ourselves as the market leader," Stauff said. "We are in the market where the action is."
-- Marcy Burstiner