It only seems like ages ago that we published our view of the
American stock markets in the March issue of the Israel High-Tech &
Investment Report. We captioned our comments "Beware of the Ides of
March" and suggested that we "expected lower prices at anywhere
between 10% to 20%".
Had Washington Irving's Rip van Winkle awakened from a one month's
sleep, he would have discovered a somewhat changed world. Valuations
have indeed changed. Those who heeded our warning and lightened their
portfolios by taking profits before the downdraft can obviously pat
themselves on their backs for "good market timing".
Not too long ago we saw the Nasdaq index, the most widely followed
index, including the best and least known technology companies, reach
an all-time high at 5,132. Now it is exactly 10% off that high.
However, that is not the whole story. We examined our IHTIR Model
Portfolio holdings and discovered that the Israeli high-flying
companies fared considerably worse than the Nasdaq index. Five of the
eight holdings are down from their yearly highs by margins of
anywhere from 26% to 34%. The portfolio holdings do not include
shares of dot com, with the exception of BackWeb which expects to
post its first profits this year, all sell products and services and
whose reports show growing profit margins.
Having noted this, it is necessary to ask ourselves Quo Vadis? or
where do we go from here?
A currently popular description of the "nuts-and-bolts" basic
companies is to call them as part of the Old Economy. The technology
and Internet related companies are all part of the New Economy. We
confess as being "lock, stock, and barrel" believers in the New
Economy sectors. Some time ago we forsook Professor Benjamin Graham,
the guru of "value investing" We have drifted away from the "value
investment" concepts of discounting the flow of future dividends and
projected earnings. Surely there isn't a single big time stock
analyst who has not studied and digested Graham's "value investing".
Graham's theories were of little use to us a number of years ago when
we wrote about CheckPoint and Comverse Technologies. We figured that
the managers of these companies were ahead of their time in thinking
and planning. When these and other companies delivered the
technologies, products and services and were able to seize meanigful
market share and show profits, we became intoxicated and have
remained that way.
One of the rules that we set for ourselves when we created the IHTIR
Model Portfolio was that we would not add new funds but use the
proceeds of the sale of any of the portfolio holdings to increase
existing or to establish new holdings.
Today our bottom line thinking is that CheckPoint, Comverse, the two
Gilats and BackWeb at the current levels offer a rare opportunity of
investing in the New Economy.