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What will the future bring?
by Briton Ryle
Wall Street old-timers will tell you the market looks three to five years ahead. But I've also heard old-timers say you can see a ghost through a dog's ear, and that caterpillars can predict the weather.
Truth be told, the market can be incredibly shortsighted. Like during the recent election fiasco. Markets are not always efficient. Great stocks get ignored while fantasy stocks are bid into the stratosphere.
Take the dotcoms, for example. That sector's thrashing was long overdue. If buying pet food on the Internet is a billion dollar idea, then my dogs should be sharing Florida's electoral votes. And whoever thought up the online grocery store that brings food to your door deserves to live in his delivery van down by the river.
20/20 vision?
But that doesn't mean tech is dead. Not by a long shot. Fiber optics and wireless will be booming for at least the next 5 years. And recent weakness in both sectors has created buying opportunities for those who have the vision that the market sometimes lacks.
We've seen some high profile earnings warnings from market leaders like Intel, IBM, Apple, Nortel, Lucent, WorldCom, Dell, Oracle, Hewlett-Packard, etc. And the supposedly forward-looking market interpreted this to mean that tech has peaked.
NASDAQ 5000 again?
If you want to see 5000 this year, go buy an Audi. 'Cause you're not gonna see it on the NASDAQ. Remember, the last time the NASDAQ was at 5000, Cisco was a half-a-trillion dollar company. Hard to believe anybody will get that kind of valuation again in the near future.
I believe the NASDAQ will remain relatively flat for the next year. But if you think a flat market is synonymous with a calm market, think again.
2001's gonna make the Perfect Storm look like Lake Placid. Volatility will be the name of the game. Here's why:
There's a revolution coming in technology. I call it the "Rise of Number Two." Many of the elite will be usurped this year. Companies like Advanced Micro Devices, Gateway, Nortel, Yahoo!, and Sprint are the Bolsheviks. And the growth companies of the nineties, the Czars, companies like Intel, Dell, Lucent and Cisco, America Online and Verizon, will see their reigns come to an end. Without some huge moves by the technology leaders, there's no way the NASDAQ can regain its previous highs.
As it stands now, when Intel sends a warning, all the chip makers get hit. Until investors realize that one company's problem is another's opportunity, the babes will continue to be thrown out with the bathwater. And we'll be looking to scoop them up on the cheap.
In fact, the revolution's already begun. Plus, S&P small cap companies are trading at an average price-to-earnings-growth (PEG) of 1.1. The big-caps are trading with a PEG of 1.7. And while small caps carry more risk, they also have higher rewards. And better chances of putting up really strong revenue and earnings numbers.
The madding crowd
A second source of volatility stems from new SEC rules on how companies disseminate information. The days of closed-door meetings between analysts and CEOs are over. You won't have to watch one of your stocks tank, and then find out that the company has changed its earnings outlook. Individual investors will be on an equal footing with high-dollar analysts.
As we all know, crowds tend to act, um, shall we say, irrationally at times. Just ask anyone who's faced a mob of angry villagers with pitchforks — Mussolini, Israeli soldiers, or Louis XVI, to name a few.
Mom always said it's dangerous to swim on a full stomach. Just wait till you see investors trading before the news is properly digested. Patience and judgement will be your biggest assets in 2001.
Read on...
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