March High Tech.
High Technology investments
General Investment Advice - Avis général pour investisseur
Risk Factor - Les facteurs de risques
 

Some advises on investments:

     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

Risk Factor

     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,
 





Copyright©1994, Alain Marchildon Reproduction or distribution without written permission is prohibited.   All rights reserved.