New Reality For Tech Investors

Sat., Aug. 5, 2000

Dunstan Prial Ap Business Writer

Second-quarter earnings reports from the technology industry are in and the numbers aren’t pretty.

Investors will just have to accept the fact that returns on technology mutual funds aren’t going to match the performances of past years.

While most technology companies lived up to Wall Street’s expectations, either barely surpassing or equaling analysts’ estimates, the numbers didn’t impress investors.

Amazon.com is a case in point. When the Internet retailer announced late last month that second-quarter sales had fallen below predictions, investors pummeled the stock, pushing it to its lowest level in nearly two years.

And when a sector bellwether like Amazon disappoints, investors have a tendency to exact their vengeance on the entire technology sector.

A similar dynamic dragged down the broader markets when Microsoft, Apple and Intel reported results that lived up to Wall Street estimates but failed to meet investors’ lofty sights.

In that sense, investors who have been transfixed by individual technology stocks are similar to their peers who rely on mutual funds in that their expectations have grown so high in recent years that anything short of spectacular is seen as a disappointment.

All of this is bad news for that unfortunate breed of mutual fund investors who placed their faith exclusively in the tech sector.

Analysts attribute the reversal of fortune to the market downturn that began late in the first quarter and has shaved more than a quarter of the value off the technology-dominated Nasdaq stock market since it hit a high of 5,049 in mid-March.

The selloff in the science and technology sector has lent credence to numerous warnings issued by industry professionals who cautioned against an apparent shift away from long-term investing to one that sought short-term profits by chasing hot sectors.

Vanguard Group chairman John Brennan was especially prophetic.

“People chase yesterday’s performers regularly, but it’s a losers game. Investors need to step back from the frenzy and invest for the long-term,” Brennan said during a speech in New York, less than a month before investors soured on technology stocks.

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