Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals. Should you choose, however, to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital. To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value. Alain
The majority of high tech companies are highly focused or niche players and only a few have a broad product portfolio spanning counter-cyclical business. Therefore, they are leveraged on a specific technology or market segment. Product life cycles in technology are short and, therefore, companies must continuously innovate in order to maintain market position. High tech firms cannot be certain that their position will last for more than a number of months. Threats come from the pace of innovation, the possibility a rival will release a superior and less expensive product or that technology will be rendered obsolete through irrelevance. Due to the complex nature of high tech products, it can become very difficult to determine whether unexpected results are a harbinger or an anomaly. Earnings can deteriorate rapidly and, more importantly, the market's perception of above average growth can shift dramatically. Many high tech companies have a small to mid market capitalization and many have only a modest float. This, combined with the inherent potential volatility in earnings expectations, can lead to down gaps, or up gaps, in stock price, and drastic changes in trading volume. Due to the potential for earnings growth, high tech stocks end to trade at higher multiples than those of other sectors. Because some investors feel uncomfortable with P/Es over 20 and no apparent correlation between book value and share value, the volatility of the high tech sector tends to be rather high, especially during a market downturn. In the Analysis Pages, You will find three Risk ratings: HIGH RISK: This is a normal risk rating for a well run high tech company. This company is trading at reasonable multiples to forecast earnings; is in sound financial shape and; has a good earning track record. VERY HIGH RISK: This is the risk rating for small high tech companies with a limited operation history. This company is trading above reasonable multiples, or ;has variable earnings history, or; appears to be in a turn around, or; is at an early stage, or; is in a weak financial position. SPECULATIVE: This rating refers to companies which are of the highest risk category. Clients investing in SPECULATIVE companies face losing all of their investments. Thus, SPECULATIVE companies are nearly insolvent, or; are trading at level unrelated to fundamentals due to stock promotions or market efficiencies,
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