SAN FRANCISCO -- A lunch time conversation (slightly rearranged) yesterday at the Robertson Stephens Tech 2000 conference:
"Market's going crazy today, I'll tell you," the gray-haired, tweed-jacketed fund manager said as he munched on salad.
The journalist chuckled as he wiped away flecks of blue cheese that splattered onto his hand. "I'm certainly not one to predict macro trends in the market."
"I had a client call me, he says, 'What do you know about biotechs?' And I tell him, 'I don't know much about them.' So he says, 'See what you can find on this one, I think the ticker symbol was HYSQ or something like that.'
"So I get a bunch of analyst reports, put it all together and send it to him, and he says, 'Buy me 1,000 shares.' And I say, 'But Milt, it already went from 2 to 7.' And he says, 'I don't care, buy 1,000 shares anyway.'
"That was back in November. Now it's up around 100.
"And I'm supposed to be managing his money."
"Well, what can you do? Who can explain what drives stocks these days?"
"He's not with me anymore. I do value -- you know, the safe stuff. I follow the Mercks, the Pfizers, not the biotechs. Last year I went up 41 percent, more than double the S&P 500. But I guess that's not good enough for some people anymore."
"He was probably looking at the Nasdaq."
"You look at these stocks and they go up for no reason. Power Integrations (Nasdaq: POWI) is up 8 points today. I was at their presentation this morning, it's the only one I went to, I've been a long-time shareholder. Did you see it?"
"No, I'm afraid I missed it."
"I like the company, but it's up 8 points! What's different about Power Integrations today from last week? Nothing. Most of these stocks that go up or down, what's different about them from one day to the next?"
Maybe people are just trading on technical indicators these days. No one looks at fundamentals anymore.
"It's the only thing you can do nowadays."
"So who else have you seen so far in the conference?"
"Went to IBM (NYSE: IBM) yesterday, they did a really good job talking about their services. Everybody's talking about services and 'e-business' these days.
"We used to follow H-P (NYSE: HWP) by counting how many oscillators went out the door. You'd go to an H-P presentation and there wouldn't be a single question asked about services, a $4 billion business. Not a single question."
"Now it's all they talk about."
"You've got to do it. But a company has nothing one year and all e-business the next? They make it seem like it comes out of nowhere."
"I guess a lot of it is cannibalizing."
"And these IPOs! It's unbelievable."
"Everybody's trying to find the next hot thing."
"You want to talk about selective disclosure -- see if you can get your hands on the IPO papers they put in the hands of the institutional sales force. Totally different from the prospectus. The sales force has forecasts for the next 10 years. And the VCs, the venture capitalists -- they have monthly sales reports at their fingertips and detailed estimates. If you can get your hands on those..."
"If I could get my hands on those, I wouldn't be a journalist. I'd be making money on the other end."
Not wanting to feel left out, I caught up for a few minutes with Niles, probably one of the more influential analysts in his space. Excerpts from the six and a half minute talk:
"The best buys are always the ones that people don't like, because those are the ones where you make the most money. We upgraded Advanced Micro Devices (NYSE: AMD) at 17 when everbody hated it, and last week you had some people upgrade it at 40. I'd personally rather have bought it at 17 than 40.
"It's the same thing with Intel (Nasdaq: INTC), Dell (Nasdaq: DELL) and Micron Technology (Nasdaq: MU). They're a great buy because, number one, not everybody loves them, so they gives them some more psychology to change; but number two, in my mind, the fundamentals have clearly turned positive, so it gives you something to build on going forward into the year.
On his favorites:
"The ones I like the best on the semiconductor side are Intel and Micron, which I would also classify as computer hardware plays. but I also think Microchip Technology (Nasdaq: MCHP) is a great buy. Here's a company that grew earnings at over 40 percent year-over-year the next couple of quarters. It's valued at about 30 times, multiple should be more like 40 and change.
"I also like LSI Logic (NYSE: LSI), who's growing earnings at 100 percent year-over-year, and there's still a big multiple expansion that I think is coming, as they do a much better job in the communications market."
On competition between Intel and AMD:
"Everybody always wants it to be either-or, but you can own both. Intel's very focused on corporate America and Windows 200 and AMD's more focused on the consumer market.
"It's always amusing how people always want to turn it down to one guy or the other. The answer is, you can own a bunch of them and make a lot of money. It's not a zero sum game in almost any space.
"How many Internet companies are there? Your ZDNet readers love to read about the Internet, but I don't see any of 'em saying 'AOL's gonna rule the entire world, so I want to sell 'em all.'
"You've got, I don't know how many Internet companiees public now, what, 300 or 400? You've got what, two big microprocessor vendors? Seems like a lot easier to invest when you have two guys than when you have 300 and you really have no idea what's going to happen."
On choosing companies to cover:
"They're all in the technology area and they all cover different parts of it. You don't buy semiconductors, you buy systems, so if you can figure out which systems you think are going to do well in the coming years it gives you a better idea of what semiconductor companies to recommend.
"The problem is, you don't want to be defined too narrowly. If all you cover is semiconductors how do you know what's going on in the computer hardware industry? Are you better off listening to Intel or are you better off listening to the customers? I believe that the customers are the ones who buy the product. I'd much rather listen to Dell and Compaq (NYSE: CPQ) because they're the ones who know what's going on." 22GO>