Every Investor's Guide to High-Tech Stocks and Mutual Funds - Hardcover

Murphy, Michael

9780767903301: Every Investor's Guide to High-Tech Stocks and Mutual Funds

Hardcover

ISBN 10: 0767903307 ISBN 13: 9780767903301

Publisher: Broadway Books (A Division of Bantam Doubleday Del, 1998

An updated version of a Business Week best-seller by a leading investment advisor takes the mystery out of high technology stocks, offering a clear analysis of the key companies, predictions of their performance, and investment formulas.

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Review:

As the stock market has risen to ever greater heights in recent years, high-tech stocks have led the way. But how many investors, though up to their ears in tech stocks, truly understand what they own? Michael Murphy, editor of the California Technology Stock Letter, makes it his business to understand the breakthroughs in science and engineering that are reshaping our lives. His book, Every Investor's Guide to High-Tech Stocks and Mutual Funds, is a useful guide for investors, both beginners and pros. It includes rundowns on the latest trends in semiconductors, computers, software, communications, and medical technology. This second edition includes a chapter on investing in Internet stocks. Murphy presents his own strategy for picking tech stocks and offers recommendations of stocks and technology mutual funds that may have the best long-term prospects.

Peter Lynch, who became a Wall Street legend by leading the Fidelity Magellan fund to top-notch returns over many years, is famous for advising investors to "Buy what you know." Sounds like common sense, right? Well, Michael Murphy disagrees. That's not to say he believes in ignorance. Murphy is one of the investment world's leading experts on technology stocks-- meaning computers and other electronics, software, and biotechnology. Murphy believes that every long-term investor should own some tech stocks--more, in fact, than we typically do.

Lynch, in contrast, avoided tech stocks, preferring shares in Taco Bell and Dunkin' Donuts over businesses more difficult to understand. Murphy retorts: "That's a bus ticket up a dead-end road." Times have changed. "We are in the midst of a once-in-a-century revolution in the basis of our economy," he writes. Its basis is the constant advance of ever cheaper computing power. While other sectors of the economy limp along, barely keeping pace with inflation, 20 percent average annual growth is the norm in technology industries, which will come to dominate the U.S. economy. Murphy foresees a day when the Dow Jones Industrial Average will include Microsoft and Intel.

These companies may have lofty market valuations already, but Murphy believes that many investors still share Lynch's wariness. Most Wall Street analysts still follow the old-line industries. Few mutual funds specialise in technology. As a result, most tech stocks are undervalued, but only until more investors awaken to the revolution. These are "the best of times to be a technology investor," Murphy concludes.

But how to begin? Which of today's young tech stocks are the Microsofts and Intels of the future, and which are the KayPros and Commodores? Murphy provides useful background on the trends in the major technology industries. He also details his strategy for picking winners.

The key is to evaluate a company's stock price relative not just to earnings or recent earnings growth but to its long-term growth potential. This is determined most of all by its commitment to research and development, the wellspring of future products and profits. Wall Street tends to knock down stocks of companies spending heavily on R&D, because it diminishes earnings in the short term. To Murphy, such stocks are all the more attractive. To identify them, he uses a financial yardstick of his own devising, which he calls growth flow--earnings per share plus R&D spending per share. "This is the true source of wealth for shareholders," he writes. Instead of using price/earnings ratios to assess whether stocks are under- or over-valued, Murphy looks at price relative to growth flow, factoring in the long-term importance of R&D.

Every Investor's Guide explains the additional criteria Murphy uses to single out truly great technology stocks. The book provides details on 30 stocks that the author believes will be the blue chips of the year 2010. There's also useful advice on moderating the riskiness of technology investing through diversification and other means. For those disinclined to do their own stock picking, the book provides comparative data on 20 technology mutual funds. A useful appendix lists other sources of information, including three books that, like Every Investor's Guide, should be mandatory reading for any would-be technology investor. They are Shifting Gears: Thriving in the New Economy by Nuala Beck. Bionomics: Economy as Ecosystem by Michael Rothschild, and The Great Boom Ahead by Harry S. Dent, Jr.

About the Author:

Michael Murphy is the founder and editor of the California Technology Stock Letter, which was rated the #1 investment newsletter by Forbes in 1996. He is featured monthly in Worth as an investment expert and is a frequent guest on CNBC and CNN. He lives in Half Moon Bay, California.

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