I'm going to make a disclaimer right up front since I don't want people to be filing suit against me and complaining that they lost money on the basis of what I'm about to say. Everyone should understand by now that it makes no more sense to blindly take advice from others than it does to stick your fingers in a blender or a lawn mower when it's operating. There's a basic concept of personal responsibility which should apply.

That being said, I don't see the economy collapsing at the current time. We're witnessing a correction which has been due for some time. I've felt that a number of the dot coms were excessively valuated and would not be sustainable in the "real world". Sorry, but you can't just hang out a shingle and expect that you can sell any product or service over the internet. Hard goods such as shrink-wrapped CDs and books are one thing, soft goods like furniture and clothing are something else entirely.

I'm not offering recommendations as to what I believe are good and bad investments. I'm just asking you to put on your thinking caps and follow down this trail with me. There's a huge difference between companies which deal in the intangibles and those which manufacture real products. Software and hardware are the perfect examples. A company which develops software has to target a niche and produce a solid, dependable package which performs the job and does so well. In the same manner, a hardware manufacturer whose products are sub-standard will be unlikely to prosper.

As part of the dot com meltdown, we saw companies with impressive records tumble merely because stated earnings failed to meet the expectations of analysts. Some of these companies have been instrumental in establishing the backbone of the internet as it exists today and will exist in the future. The loss in market capitalization experienced by these companies defies logic. A company such as Nortel Networks with over US$30B in sales last year doesn't lose up to a third of their intrinsic value overnight.

The sames applies to companies such as Cisco, provider of probably 75% of the internet routing infrastructure. These are companies which manufacture hardware essential to the next phase of growth in the American and world economies. Does it make sense that these solid companies should lose a significant portion of their value just because a toy e-tailer didn't have a sensible business plan in place and failed to deliver during Christmas 1999?

I've previously written about how I see the day traders corrupting the concept of investing in companies. When I buy stock, I'm not looking for the miniscule variations of the buy/sell spread which might make me a few bucks on the day. I'm looking for long-term investments in companies which show promise for the future. Technology is bound to be a major contributor to our daily lives in the immediate future. It's inevitable, and brings along many opportunites as well as pitfalls.

I'll admit to being fond of those companies which introduce products which address a real need. Even though I could never imagine carrying one of the current crop of PDAs (Personal Digital Assistants,) give me something which can securely access the World-Wide Web at a reasonable price ($200 connection fees and $50/month for 19.2K access just doesn't cut it!) and I'll be interested. The IEEE 802.11b standard has promise based on the speed factor alone and is improving insofar as interoperability.

What I'm interested in are the companies which have demonstrated that they "get it" and can adapt to the emerging trends. As an aside, if you had bought IBM stock at the beginning of '98, you could have almost doubled your money by the end of the year. Apple Computer was up more than twice January's price by December of the same year. I should also mention that IBM went from less than US$40 to the current price of US$108+ in the space of five years, with two stock splits along the way!

I suppose that what I'm suggesting is that the fundamentals are still very important. If you're looking at the short-term then this isn't going to make any difference to you. For long-term investing, look for companies which demonstrate resiliency and the ability to adapt to changing market conditions. While I wouldn't for a moment claim to be able to predict a V or U recovery, I honestly believe that the current murkiness will be positively clarified by calendar 3Q.

Again, please understand that I'm merely making personal observations. I also admit to taking a position in Nortel Networks; sorry, but 18 1/2 didn't make any sense at all. I'm also planning to invest in both Cisco and IBM as solid, blue-chip, long-term investments. I'm not recommending any of these stocks, merely trying to show you how to perform your own analysis. Choose your level of risk and always be careful; if you find yourself getting an ulcer over what a stock is doing on a daily basis, maybe you'd be better off investing in mutuals.

Copyright © 2001 by Phil Selby. All rights reserved.