This Year in Tech, There are no Substitutes for Good Stock Picking
Chart of the Week for October 20-26, 2000
As technology stocks have been skyrocketing for the last five years, some investors believed that technology companies were inoculated against ordinary economic forces, such as slower pace or rising interest rates. That belief and the frenzied trading and investment it generated led to the historic surge of technology stocks, contributing to the greatest bull market ever. However, the recent stream of earning warnings from several of the biggest names in that sector has forced investors to reassess the depth of their belief.
To their disappointment, many investors have discovered that, after all, the sector is not immune to ordinary market forces. As value stocks seem to take the leadership position over their growth counterparts, the technology sector has suffered the most. For instance, as the chart above depicts, approximately half of the technology stocks in the S&P 500 Index are in negative territory for the year (as of 19/Oct/2000), while the sector itself is down (14.0%). Some of the biggest names saw their stocks plunge to record low valuations. Similar trends were noted across all market capitalizations.
If anything, the poor year-to-date performance of the technology sector illustrates the point that investors who concentrate a massive amount of resources in a particular sector in pursuit of short-term gains can be disappointed. The prevailing volatility in the equity market has clearly shown that even enormous short-term gains can be easily squandered by market gyrations. Investors can protect their assets against these fluctuations by developing properly diversified portfolios with a long-term focus.
It is also clear from the chart that the market rewards intelligent stock picking. While about half of the stocks (including many household names) are in negative territory, others such as Siebel and Network Appliance have produced enormous returns. This year, being in the tech sector isn’t enough— it’s carefully choosing the names to be in.
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