Buy Techs

If no one has told you yet, there’s a big difference between speculating and investing.

The difference is time. Trading stocks is a full-time job. Speculations need to be watched carefully. You should be able to glance at investments.

That’s how I knew that what happened with Internet stocks in the late 1990s was a bubble. People were talking about daily or weekly changes in stock prices like they meant something.

Most people on Wall Street are paid to trade. If you’re sitting on investments, they don’t earn much. Try to imagine how little I care about that.

I don’t look to The Street for advice on investments. Everyone there has an ax to grind. Managers are judged on short-term results. Anyone working with a brokerage firm is selling something. Analysts are often touting companies their bosses make markets in — it’s a huge conflict of interest. Newsletters are like racetrack touts, and few see past the race in front of them.

Investing is simpler. You look out 10 or 20 years, you identify the leaders in every sector, and when everyone says dump them, you buy.

Some investments don’t work, but my biggest problem has been impatience. I once bought Citibank at $10 and sold it at $15. I bought IBM at $75 and sold it at $50. I was watching too closely.

The only thing I’d worry about with an investment is loss of leadership. When Xerox loses ground to Japanese copier companies, you should notice that. When a company like Kodak starts laying people off, you should notice that. But if bought for the long term, your past gains should give you plenty of time to get out.

The purpose of this homily is simple. Now is a good time for investors to buy technology stocks. You find the leaders, you buy them, you hold them, you forget about them.

If you listen to paid analysts, of course, you won’t do this. They all chase what’s working right now. The paid analysts say buy insurance or buy oil — stuff that’s going up and, thus, has a “nice chart pattern.” These are the same brainiacs who probably told you to buy Amazon at $100 or Yahoo at $200 and are now telling you to dump both. You going to listen to them or listen to me?

Now none of these rules apply to Internet stocks, because they don’t have any long term. I can’t tell you today if Yahoo or Amazon will even be around in five years. I couldn’t tell you that three years ago, either.

But there are lots of companies like Oracle and Cisco, EMC and Intel, Applied Materials and Sun, and even Microsoft — companies we know will be around (in some form) 10 years from now, companies that have real earnings and growth and are bargains right now. The average stock has had a price-earnings multiple of 15 over the last several decades. If you can get one of these outfits for something like that, it’s a bargain.

Besides (and this is the important bit), we’re not getting out of this recession on the backs of any railroads or homebuilders or automakers. The United States is a technology economy. If the techs can’t come back, we can’t come back. So if this strategy doesn’t work in 10 years, you can dis me about it in the breadline, because that’s where we’ll be.