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Getting in on the tech craze
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March 7, 2000: 10:32 a.m. ET
Yes, most everyone wishes they'd bought more tech stocks. What now?
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - So you missed out on the tech rally. Nasdaq breaking 5,000? Instead of thumbing the Porsche catalog for a new Boxster, you're bolstering for that endless drinks-party monolog with Bill, Mr. Tech Stock Bigshot. He will pin you in a corner and ram his three-figure returns down your throat.
What do investors who missed the rally do? "Not look back is the first thing," quipped Roy Diliberto, president of the Financial Planners Association and of RTD Financial Advisors. And steer clear of Bill.
How to play the boom is a quandary. Even if you own technology, you probably think you don't own enough. Half the pundits say tech prices are unsustainable. The rest insist you can't pass up the wave of the future.
"They're probably both right," said John Manley, senior equity strategist at Salomon Smith Barney. Tech stocks have the highest multiples, the highest betas -- a measure of risk -- and the highest prices. But the potential is open-ended, Manley said. Not unlimited, but no one knows what it is.
Day to day, the Nasdaq composite index isn't that important. "Technically, 5,000 is an arbitrary number," Manley said. "It's like turning 50 or 40. Does it matter? Are you a lot older one day to the next? But it is a milestone."
More milestones are likely. To claim tech stocks are overvalued, Manley said, you have to know how they're growing and know the growth is not matching expectations. That has not yet proved the case.
It doesn't make sense to write off a sector that's growing between 20 percent and 25 percent, with three out of every four earnings revisions moving upward, Manley said. "You have to own technology until you see some signs the earnings expectations are not coming in higher than expected."
How much is too much?
He does not approve of buying value stocks. "Why should I buy a paper (company) stock, when it's not going to grow faster than the U.S. economy?"
Investors can find reasonably priced stocks in growth sectors such as health care and financials, without foregoing the booming parts of the economy, he said.
Still, most investment advisers preach the doctrine of diversification. Some say younger people could consider sticking as much as 50 percent of their portfolio in technology stocks. Others, like Scott Kahan, president of Financial Asset Management Corp. in New York City and a certified financial planner, tow a more conservative line.
"For people who are looking to get into this market, they probably should not have more than 20 percent in tech," Kahan said, and the most aggressive could stomach 30 percent.
Homework and the D word again
Tech stocks will pull back, and sectors that have been beaten up will come back. "The problem is, will that become true in six months from now, six weeks from now or six years from now?" he said.
Diversifying takes the wondering out. Most planners recommend mixing tech and growth with a little value, a little international, a few sectors, and blending large-cap and small-cap stocks. If you own mutual funds, make sure you know what their technology weighting is.
"For the long term investor, it's probably not too late to get in [to tech]. It's never too late," he said. But do not invest money you need short-term, he said, and do not put it all in one place.
Typically, investors chase returns, Kahan said, buying into hot sectors as they're cooling off. Smart market timers would be getting into the unpopular sectors. Last year, Japanese, emerging-markets and small-cap stocks rallied. Two years ago no one wanted them.
"If you just put 100 percent in tech and call it a day, that's a very dangerous game. Those are the people who will be taking money out of tech and into something that's done well at the wrong time."
Even Silicon Valley worries about diversifying
Barbara Steinmetz, a certified financial planner with Steinmetz Financial Planning, deals with the tech boom every day.
Her company is in Burlingame, Calif., on the edge of Silicon Valley. Many of her clients hold great paper wealth in one company, tech boomers such as Ariba (ARBA: Research, Estimates), Siebel Systems (SEBL: Research, Estimates), Liberate Technologies (LBRT: Research, Estimates) and E.Piphany (EPNY: Research, Estimates).
"They've got an opportunity to establish a tremendous amount of wealth if it's handled correctly," Steinmetz said. "If not, they don't know what they've got. They're like deer caught in the headlights."
She tells them to diversify. "It's hard to take someone out of something that has had maybe triple digit increases and put it in something that may grow 10 percent or 12 percent a year," she conceded. But she has seen the flipside, when a stock plummets and decimates an employee.
Don't let greed get the better of you, she said. But don't fall prey to the other overriding emotion investors feel, fear. People who have not invested in tech at all should take "baby steps" buying into the sector slowly, probably through a mutual fund, she said.
"For somebody who thinks they missed their moment, I wouldn't go running out there and pay some of the inflated prices," Steinmetz said. Then again, 'how you can avoid that sector completely and feel diversified I don't know."
Have a plan and stick with it
Diliberto said it is vital to know why you are investing. "You wouldn't just jump in your car and drive around until you got someplace," he said. Having an asset allocation strategy takes the guesswork out of what to buy.
You hope you hold the best-performing sector, and you'll also have some sectors that aren't at their peak.
"If you do that, there's no such a thing as buying high or selling low," he said. Otherwise the temptation is to latch on to every investing craze.
Right now that is technology. It will not always be. "People who try to cash in on these incredible stories are just as well going to Atlantic City and betting it all on red," he said. "Maybe they're better off going to Atlantic City." 
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