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Note on the "technology bear market"

dated 21 December, 2000

updated 14 September, 2001

My supposition has been a rise in technology stock quotations averaging about ten times growth every ten years, what I call the "ten-ten" rule.

A portfolio based on the suggestions on this web page was 1 unit at the beginning of 1999, 1.3 units at the beginning of 2000, 2.5 in March 2000 and 1.3 units at the beginning of 2001. On the basis of 25% growth it should have been 1.25 at the beginning of 2000 not 1.3, and 1.56 at the beginning of 2001, not 1.3. On an annual basis the rise is not consistently 25%, but over a decade the net result should still be 10 times and I can see no reason to change this idea.

In fact, the bottom of the present bear market, wherever it is, is an unprecedented buying opportunity. In 2001 there is the introduction of the next range of Intel processors for the PC market offering speeds of 1.5 Ghz - "faster" than a microwave oven. The Windows operating system will finally converge the "NT" type with the "consumer" type. Advances still continue in the medical and genomics fields. The semiconductor market still has lots to offer besides PCs - mobile communication and dedicated computer products will continue to appear on the market.

If you own technology stocks and have hung on to them you still own the same assets - they are only devalued if you sell at or near a market bottom. It is not wise to sell at the bottom or to stop monthly investment plans near the bottom (unless you have some other really pressing reason for so doing.) After all, if you have bulk bought baked beans, and there is a special offer at the supermarket (ie a bear market in the price of tins of baked beans) you don't rush out and sell your tins of beans at less than the price you paid for them. Instead you go on using them. In the case of your technology shares, they are still going on working for you in terms of underlying physical growth. It is just that this growth isn't increasing at a level as high as the stock market expected in comparison with the results at the end of 1999.

Of course your investment decisions are your own to make. Personally I am hanging on to my technology shares through the bear market in the firm expectation of seeing a recovery in the months and years ahead. Other commentators have suggested that the general public and professional alike will be far more wary of technology shares in the future. This suggests that the physically inherent 25% growth in technology will be "all" that we will get financially until the markets are again destabilised by the economic effects of nanotechnology, which are still some years ahead.

Footnote: trading with hindsight, it would have been possible to sell at the peak of 2.5, pay tax resulting in a valuation of 1.5, and buy back the same shares at the end of 2000 at 1.3 having washed the portfolio of tax and making a profit of 0.2. The problem with this is that my own thoughts at the time would have been to sell in January at 1.3, (because it was over the 25% line). This would have given a nett result of 0.78 which at today's valuation would produce a tax induced loss of .52 This just goes to show that making investment decisions with the benefit of hindsight is a waste of effort, even though most people try and do it. There is a chance that the valuation will fall further, but the fall is now pulling hard against the 25% line the other way. I am not willing to stake nearly half my portfolio against that chance. [remember 1= Jan 1999 valuation]