Word: teche
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There's one new economy rule that is turning out not to be true: the much hyped contention that the tech revolution has permanently repealed the business cycle. You've heard the argument. New technology would raise productivity. Higher productivity would raise workers' income without fueling inflation. Well-paid workers would buy more, leading to more production. It was going to be a virtuous cycle that spun only upward. Well, it just hasn't worked that way. "The biggest surprise," says economist Roach, "is that the business cycle is back--New Economy...
...little careless. You didn't rebalance your portfolio as tech stocks soared a year ago. Maybe you hung on to that dotbomb until it exploded, and then made things worse by running up your credit cards. Or while your investments were booming, you decided you could afford to save less. With stocks cratering and the economy slowing, you don't feel so flush anymore. It's time to get real and fix those giddy-times mistakes...
...months, as many economists believe, then the stock market could begin to recover right away as it looks ahead to the next expansion. That's how bull markets are born. Indeed, many on Wall Street predict double-digit returns from the Dow and S&P 500 in 2001. The tech-laden NASDAQ they see as more problematic, but still going higher...
Diversification, a concept that fell out of favor in the tech boom, will be critical in 2001. If you've still got more than 20% of your money in tech stocks, consider selling the ones with no earnings or with price-earnings ratios that far exceed their projected growth for this year. Those are ultrasensitive to even minor adjustments in what investors believe the companies will earn in future years. That was dandy in the bubble, when expectations were running high. Now we're seeing the downside of extreme volatility, and it isn't pretty...
...more than half over the past year, to $38, but it still carries a forward P/E ratio of 47 vs. a 21 P/E ratio for the overall market. Yet Cisco's earnings this year are expected to grow by only 28%. There are far more attractively priced tech stocks: for example, Dell, expected to grow earnings at 21% and selling at a P/E of 16, or WorldCom, which has hit a few bumps but is still averaging long-term growth of 26% a year and selling at a P/E of 12. If you invest in individual stocks, the past year...