Technology is Here to stay...Don't Sell
Globe and Mail
Despite the carnage, technology is here to stay
By MATHEW INGRAM
16:30 GMT-05:00 Friday, March 02, 2001
While it has rebounded from the depths seen on Thursday — when it came within inches of breaching the 2,000 mark — the Nasdaq index is still back where it was in late 1998, and market watchers are busy talking about key support levels and downside risk. The bears say there is more to come, while the bulls say the market has finally achieved "capitulation," or the moment of maximum pessimism, and that the recent rally will continue.
It's easy to get caught up in the day-to-day perils of the tech sector, the latest poor earnings report or negative forecast, another barrage of brokerage firm downgrades, and so on — and it's tempting to think that the Nasdaq stock chart contains a secret code that will tell you where stocks are going from here. But too much of a focus on the hourly ups and downs of the market can miss the larger point, which is that technology is still where the growth is likely to be for the foreseeable future.
After the kind of mind-numbing collapse the Nasdaq market has seen over the past year — a slide that has wiped away close to 60 per cent of its value, or $2.2-trillion (U.S.) in market capitalization, according to estimates from TheStreet.com — everyone wants to know when the bleeding is finally going to stop. When will the avalanche of bad news and falling stock prices finally give way to some good news about technology?
The only problem with watching the stock tape and searching for a definitive buy signal is that there isn't likely to be one. As the old Wall Street saying goes, no one rings a bell when the selloff is over, and a true market bottom (much like a recession) only really becomes obvious long after it has occurred. The question that shell-shocked Nasdaq investors really have to ask themselves is whether they believe that technology is still a sector worth investing in, regardless of where the index winds up.
If the Nasdaq is back where it was in late 1998, what that means is that most (if not all) of the speculative hysteria that was associated with the Internet is now effectively gone — consigned to that place where theoretical market value goes when it suddenly disappears. Remember Books-A-Million, which was going to be the next Amazon? Remember TheGlobe.com, which saw its stock price climb by more than 600 per cent in the first day of trading? How about Pets.com, or DrKoop.com, or Trucktires.com?
All of that is gone now, a distant memory — like the dim shadows that remain after an all-night drinking binge, the Nasdaq is only now emerging from its great Internet hangover. Unless you happened to sink your RRSP savings into a basket of dot-com startups or junior mining companies that became Internet incubators, this is probably good for the market as a whole. Companies that were formed two months earlier by a couple of high-school dropouts shouldn't be worth $3-billion in any rational market.
The problem for the Nasdaq is that this great dot-com selloff has combined with a sharp downturn in the U.S. economy, which has hit even the big technology leaders such as Microsoft, Dell, Intel and Cisco — combined with some management bungling at companies such as Hewlett-Packard and Lucent Technologies. The result is a selling fever that has brought the tech sector to its knees, and left some retail investors wondering whether there is anything worth investing in at all on the Nasdaq.
Clear-headed investors, however, are even now taking advantage of this indiscriminate selloff to pick up companies at unheard-of discounts. It's true that earnings are slowing and this year may be problematic for many of the former high fliers because of slower sales, but sound companies are worth buying regardless of that kind of short-term problem. Just because a company's market value has tumbled by more than 75 per cent, as Nortel Networks' has, doesn't mean that it now deserves to be lumped in with all the dot-com detritus piled up in the alley behind the Nasdaq.
Yes, computer sales have slowed down, and may never reach the heights they once reached. Yes, there is an over-capacity of telecom equipment at the moment, and an under-capacity of financing. But smart computer companies and leading telecom suppliers will continue to make money as those markets change and evolve, because the wireless, high-speed, Internet-protocol, networking phenomenon is qualitatively different from the dot-com, Web retailing, Internet "portal," banner advertising phenomenon.
Dell and Cisco and Intel and Nokia — and Nortel and JDS Uniphase and PMC-Sierra — are good companies at the leading edge of the long technology boom, one that may have hit a slow patch but is still underway. Once the dust settles from the Nasdaq's current gyrations that will again become obvious, and investors who remember it will be better off.
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