Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.
Managing Your Money: Profit Comes to Those Who Wait
Buy what you know and hold on to it are the rules for investing in tech stocks.
June 1, 2000
Five years ago, Saul Klein, president of Saul Klein & Associates, a property management firm in San Diego, decided it was time to shake up his stock portfolio.
“Peter Lynch, an investor I admire, says you should invest in things you know about and are interested in,” he says. “The area I know about is technology. I bought a computer in 1981 and went online for the first time in 1992. I’ve also made it a point to know as much as I can about technology companies.”
Klein, who’s also a certified financial planner, decided that in the future he’d focus his investing on high-tech companies, starting with the four he judged to be the clear leaders in their respective areas. “Microsoft dominated software, Intel dominated processors, Cisco Systems led in routers and switchers, and IBM was the main manufacturer of computers,” he says. “In some ways, it was a no-brainer decision.”
The deal: Building a technology stock portfolio for his retirement account by investing in companies that are the leaders in their field.
Time: Five years
Initial investment: $40,000
Current worth: $370,000 as of April 19
Those four remain the cornerstones of his portfolio--even in the wake of the massive sell-off of technology stocks this spring and the Justice Department’s negative ruling in the Microsoft antitrust case. Klein says Microsoft remains a sound investment, no matter what the case’s ultimate outcome. “History has shown that shareholders tend to do very well when companies are broken up,” he says.
Over the past few years, he’s added five others--Amazon.com, Yahoo! Inc., Qualcomm Inc., Network Solutions Inc., and Homestore.com Inc. Amazon is the well-known online book and music retailer, Yahoo! is an Internet portal, Qualcomm is involved with wireless communications, and Network Solutions is an Internet domain registration company. Homestore.com, his most recent buy, operates REALTOR.COM, the online real estate site created by NAR.
“All of these are more risky because they represent the next level of technology--the Internet market,” he says. “But if you know anything about technology, you can sense the market is moving in that direction.”
Klein’s initial investment was $40,000. As of April 19, his portfolio was worth approximately $370,000, a compounded growth rate of 900 percent.
Klein draws a distinction between investing and trading. He does both but doesn’t recommend the latter strategy for the average investor. Investing is about making money on the long-term run-up of a stock and is usually tied directly to a company’s financial results.
Trading is a much riskier affair. “It’s gambling,” says Klein. “You’re betting that your knowledge of the market is better than everyone else’s.” For example, you may decide to sell a stock that you think is due for a temporary correction and then buy it back later at a lower price.
“To be a successful trader, you have to follow the market closely every day,” he says. “Most people don’t have time to do that.”
Klein, however, does. He estimates that he tracks the market “first thing in the morning and periodically through the day.” He also day trades, a revved-up version of normal trading whereby a trader will buy in and out of a stock several times during the course of a single day.
For most people, Klein says, the best advice is “continue to buy. Don’t pay any attention to what the market is doing. If you’re convinced the company is a strong company, buy the stock and hold on to it.”
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Updated: September 22, 2022