(MONEY Magazine) – Want to invest like a pro in the risky high-tech field? Then listen to Garrett Van Wagoner, who now heads his own San Francisco money-management firm after three years as skipper of the Govett Smaller Companies fund. Under his leadership, the fund ranked No. 1 among all U.S. diversified equity funds in 1994 with a 28.8% return and No. 3 last year with an eye-popping 69% gain. Van Wagoner's advice: Bet on the companies that have the best growth prospects. Technology investors make money riding major trends, even if that means suffering through temporary losses. Van Wagoner focuses on smaller companies that can score the biggest gains. His tips are also helpful, however, for tech investors who favor larger, less risky firms. He shared his views in an interview with MONEY. Highlights:

Q. Why are tech stocks having so much trouble after a great '95?

A. Two technology trends boosted stocks last year. First, a boom in personal-computer sales increased demand for chips, modems, disk drives and other computer equipment. Second, the rise of the Internet helped push up sales of software and Internet-related services. As a result, halfway through '95, Wall Street analysts discovered that their earnings projections were too low and had to raise them from around 20% on average to 30% or more. By contrast, the outlook isn't as good this year, simply because the economy is slowing and analysts are having to trim their estimates.

Q. What's the smart way to invest in technology today?

A. Look for companies that have highly profitable products with great growth prospects; the firms will at least be partially insulated from the effects of a slowing economy. In addition, technologies that increase efficiency, such as office computers, are likely to continue selling well in an economic downturn because they help cut costs.

Q. How do you know when a technology area is hot?

A. Look for trends that will permeate the culture the way television did in the 1960s. For example, there is the explosion of Internet traffic, fed by users seeking anything from stock quotes to electronic mail to looking at paintings from the Louvre.

Q. How do you know when a tech stock is a good value?

A. As a general rule, the price/earnings ratios of technology stocks shouldn't be higher than their growth rates. In other words, a company with earnings growing 25% a year should have a P/E of 25 or less.

Q. Should you ever buy at a higher multiple than the growth rate?

A. Yes. But you should only pay up for exceptional companies. Ideally, such businesses have above-average profit margins and earnings growth of more than 25% a year. They also have strong balance sheets with debt less than 25% of total capital. Even for a stock that meets all these tests, though, you have to believe that the company's business is part of a major trend.

Q. When should you sell?

A. If a stock's outlook changes so that the reasons you bought no longer apply, sell it. For example, I invested in semiconductor stocks in mid-'94 because demand was increasing and chip prices were steady. Then demand started to fall off and prices softened. I sold, and the stocks are down 30% or more since then. Also be careful if a company reduces its spending on research and development (measured as a percentage of sales). That's a sign that the business isn't investing in the future, which is what technology is all about.