By Geoff Senescall
Between the lines
Trying to read the investment tea-leaves as we head into the new millennium with technology changing so rapidly is a hard ask for anyone looking to allocate his or her funds.
Decisions are not made any easier when investors read about the stunning gains of technology companies, not only abroad but in New Zealand.
Individual investors could be forgiven for feeling they have missed out on the run, with the likes of Strathmore having risen more than 2100 per cent in 12 months.
Furthermore, a traditional valuation measurement of price-earnings ratios has no currency for technology stocks, which have no earnings.
Then there is the issue of how the emerging economy, dominated by a revolution in communications, is affecting industries in general.
It is good to know broking firms are not taking all this lightly.
One grappling with such issues for its clients is Credit Suisse First Boston (CSFB), which has produced a 700-page report on global trends moving into the next millennium.
Its analysts were asked to review their industries in the context of the next five to 10 years.
What the report clearly illustrates is the pervasiveness of the new technology, with its centrepiece the internet. As it says: "It took around 39 years for the radio to reach 50 million users, TV managed it in 13 years, it took the mobile industry only 10 years, and the internet achieved the milestone in four years [from commercial availability]."
Essentially the internet revolution compresses time and distance and changes the business model of virtually every company on the planet.
While it would be folly to try to condense the findings of such a report in this column, there are four key points worth mentioning.
* Be aware of accounting-based distortions and focus valuation on cash-based measures.
* Don't ignore technology. Technology stocks account for 22 per cent of the S&P 500. The new economy will affect all stocks people invest in.
* Beware of the "Red Queen" effect. CSFB believes much of the value generated by IT-driven efficiencies will be appropriated by customers rather than shareholders.
* There are three clear industry winners that are global, on trend demographically and knowledge-based. They are technology (including telecoms), healthcare and financial services (banks and insurance companies).
What the report makes obvious is that the accelerating pace of technological innovation increases the chance that today's winners will be unseated by further innovation.
Clearly, all the action is led from overseas. New Zealand will participate in these global trends, but probably as a follower.
If one thing is evident from the report, it is the importance for local investors of holding a significant portion of their equities in global securities.
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