This experience, in later years, when I had some money available for
playing the market, taught me to look before leaping. By that time I
had studied Benjamin Graham's The Intelligent Investor. Professor
Graham was Warren E. Buffett's guru and more than two decades ago I
caught on that Buffett was a savvy investor and Graham was a man to
heed.
Ben Graham stated that the "ideal form of stock analysis leads to a
valuation of the issue which can be compared with the current price
to determine whether or not the security is an attractive purchase.
This evaluation, in turn, would ordinarily be found by estimating the
average earnings over a period of years in the future and then
multiplying that estimate by an appropriate 'capitalization factor'."
The approach is relatively easy to apply to basic industries such as
aluminum, steel, automobiles and the like. There are readily
accessible multi-year statistics indicating earning power under
varying conditions and comparisons with competitors. This allowed for
making predictions with some degree of confidence as to their
accuracy.
We learned to evaluate innovation such as produced by Edward Land and
the Polaroid camera. We were able to understand the potential of the
photocopying machine. Some of us bet on Polaroid and Xerox and our
only regret was selling out too early.
However, when considering investing in the New Economy companies, we
are denied the comfort of having many years of earnings history. The
competitors in transferring voice and fax by circuit or packet
technologies, already have accumulated several years of exponential
growth. Yet there is no assurance that their "unique" product or its
knock out technology, will become 'world beaters'.
In 2000 only a few investors avoided the trap set by Wall Street
analysts issuing recommendations. A recently published study revealed
that of the 8,000 recommendations outstanding, less than three
hundred contained sell recommendations. This was the key factor which
more than anything else was responsible for the more than a trillion
dollars in losses suffered by Nasdaq investors in 2000. In spite of
countless corporate earnings warnings announcements, while
simultaneouslthe Nasdaq was precipitously falling by more than 55%
from its top, the analysts kept recommending to investors to continue
to buy the shares of companies that were losing their gloss. Even the
shares of the bubbly dot com were being hyped.
However, a New Year has begun, and investor amnesia undoubtedly will
set in sooner than we expect. Asset allocation, what percentage bonds
and what percentage shares will depend on one's expectations for the
US economy. Those who have proclaimed that they will not touch
technology, because they were burned by a dot com, will return to it
in a 'big way'. The New Economy, Globalization and e-commerce will
continue to expand. Those who provide the answer to the needs of the
big theme will continue to thrive. Among the beneficiaries will be
the established Israeli companies and the younger ones who are
proving themselves as offering added value.
For the investor, the big questions begging for an answer are, where
to invest, and the other question: when to invest. It sounds like a
tall order but common sense, a bit of contrarian thinking, and tinged
with a touch of bravado make the task easier than we imagine.
Valuations that seemed astronomically high a few months ago, while
clearly still high today, in some cases are beginning to come into
view.
The sina-qua non assumptions are that America and Europe will escape
serious recession. Alan Greenspan's rate cut is a good start towards
that goal.
Even if information technology spending is cut by corporate America
in 2001 computer security will remain a major issue. That spells
another banner year of explosive earnings growth for Check Point
Software. The company is by far and away the global leader in its
field.
WAP or the Wireless Application Protocol, is a set of standards
specifying how cell phone users access the World Wide Web. A
technical hurdle to overcome is security on the Internet, which still
leaves some issue to be solved. Many believe that the future big
bucks lie in wireless cell phone business. But issues of price must
be solved. Technology at an exorbitant price will not work in the
real world.
Messaging applications have already proved their mettle and Comverse
Technology continues to be among the leaders in this field.
We are publishing our choice of seven Israeli high-tech companies
that in our view provide winning systems and software for
communications, computer security, messaging management voice over IP
technology, wireless communications and database. They are most
likely candidates to be among the 'Israeli big-time- winners' in
2001. These are public companies and are part of the Millennium
Israel High-Tech Model Portfolio. (see p.11)
As a youngster, early on I learned that glitter and hype do not
translate into gold. More specifically, I learned that betting my
allowance on Canadian uranium stocks as advertised in the pulp
magazines that I read for relaxation, was a sure-fire recipe for
financial disaster. Twice I tried and twice I lost my dollar stake.
In later years it occurred to me that the perpertratots of the scams
probably received enough dollars in the mail, from na•ve greedy
puppies like myself, to make their promotion worthwhile.
Nevertheless, I hold no grudge against these ugly promoters who
preyed on the ignorance and potential avarice of a whole generation
of youngsters. If pushed a bit, I may admit to being indebted to them
for a valuable though an inexpensive lesson.
