When investing in technology stocks, says Michael Gianturco, the things you don't do are far more important than the things you do.
Apparently Gianturco does all the right things. The average recommendation of his Princeton Portfolios newsletter has risen 280.6 percent over the past 10 years, vs. the 85.8 percent risk-free return of Treasury bills. Gianturco has produced those numbers during a very stodgy period generally for high-tech stocks.The best strategy in technology investing, says Gianturco, is to ignore the stocks you shouldn't buy. This requires avoiding the potential mistakes that may be urged on you by the excitement of the market or the persuasive powers of stock and fund promotions. The best way to guard against making these mistakes is to learn to recognize them in advance. In a recent issue of Forbes, Gianturco described the six major sins committed by technology investors. His cautions can easily be applied by general investors to their portfolios as well.
- Trading in and out of celebrity stocks is Michael Gianturco's first big no-no for high-tech investors.
"Just pick and stick. Once good or bad news has been widely disseminated about a famous technology stock, which takes about a microsecond, it isn't news anymore, and it's almost always a waste of money to try to trade on it."
- Purchasing last year's winners is the high-tech investor's second major boo-boo.
"This is mistaking an event for a trend. Another example is buying a stock just because it's set a new high. In an advanced market such as today's, a new high is just as likely to suggest a top as a forthcoming series of new highs."
- Don't buy a stock because everyone else is buying it, cautions Gianturco.
"If everybody is getting in, you should be getting out or going short. The news that everybody was getting into mutual funds last year hasn't had a positive effect on the stock market. It's been going down ever since."
- Selling a stock because it "will never come back" is another common mistake, says Gianturco.
"Technology stocks have amazing resilience. The newer ones are extremely volatile. They may swing to wild extremes, up and down, around their center line. Again, the lesson is: Pick and stick."
- Misreading analysts is also dangerous to technology investors' health, says Gianturco.
"Like the rest of us, analysts hate to be wrong. So they're very slow to reverse their opinions. Analysts seldom use the scare word 'sell.' So an analyst's 'hold' recommendation is often understood by the market as a 'sell' recommendation. But in a depressed market, I find 'hold' recommendations can be dynamite buy signals."
- Buying new issues is the technology investor's final error, says Gianturco.
"New high-tech issues follow hairpin trajectories which few traders have the reflexes to play. It's better to wait until a new stock has been on the market for a while, perhaps as long as two years."
(Princeton Portfolios, 301 N. Harrison, Princeton, NJ 08540.)