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Milk managers for guidance

True story (really!): A recently-retired milko rang his adviser and asked which one of two tech stocks he should put all his money into!

Scary? Well, yes and no. After all, we’ve all heard the horror stories and the doom and gloom predictions surrounding the future of technology stocks. Many are saying the Internet bubble must soon burst.

However, the ‘milko’ was not too far from the right idea, although we’re not too sure if we agree with how he’s going about things.

Why is ‘technology’ seen as so important?

Australia makes up only 1.5 per cent of world share markets. We’re an even smaller player in the global technology stakes.

What’s more, as the world’s industries globalise, many of the growth industries are overseas. These include things such as aerospace, pharmaceuticals and, in a very big way, high tech.

If you were in high tech a decade ago, you’d have participated in most of the world’s share market growth.

As an example of how fast the growth has been, consider that one in four Americans has taken to the Internet in the past seven years.

Compare this with electricity, which took forty-six years to reach this level of acceptance, with telephones taking thirty-five years.

Television achieved the same penetration in twenty-six years but this holds some people’s attention forever! Internet commerce is already valued at more than US$100 billion worldwide.

Ten years ago, an average portfolio included 15 per cent in international shares; now 20 per cent to 25 per cent is closer to the mark.

Even so, is now the time to get into high tech? It’s all too easy to become a speculator and forget investment disciplines.

Some well-publicised paper fortunes made from the technology boom are, no doubt, quite tempting.

Fund managers generally look to avoid fads and if there is one thing about high tech investing, it’s that it could be seen as faddish.

Fund managers pick trends and the fact that they are still trying to get a piece of technological revolution is a good pointer for the rest of us.

When buying, funds look for good earnings growth prospects, strong balance sheets and high quality management.

Some managers have launched specialist technology funds. Whatever they’ve done, managers have used their huge resources of professional teams and access to information to sort the wheat from the chaff.

The types of stocks that funds have bought are no minnows. America Online, Cisco and MCI are dominant players in the technology field.

Many companies have created and maintained shareholder wealth in a rapidly changing, globalising economy.

It is important not just to focus on the high profile Internet stocks, which are only a very small part of the technology and communications sector. In many cases these will turn out to be speculative investments, which don’t deliver the goods over time.

Given the risks of new investment themes like technology, it is reasonable to expect higher volatility over the short term while returns are more likely to be good over the longer term.

However, unlike the ‘milko’, it may be better to pick good managers who happen to have ‘tech’ stocks, rather than the ‘tech’ stocks themselves.

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