Taking Stock Low Times for High Tech

Guy Rolnik
Guy Rolnik
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Guy Rolnik
Guy Rolnik

Investors here and in the States have long since stopped caring about analysts' reports, mainly ones issued by foreign investment banks. The crash, the malfeasance, the probes, the indictments, and the e-mail scandals have drummed home the lesson of how analysts see their role, and what we can expect of them.

That may explain why the report written by Ilana Treston, Merrill Lynch's Israeli high-tech analyst, attracted hardly any attention. We're all sick to death of analysts' babble, especially about tech companies with murky visibility.

But Treston actually had something interesting to tell her customers, and she didn't shy at writing it with all the subtlety of a sledgehammer: "Frankly we find it hard to believe that investors cannot find better risk reward equations outside the sphere of our coverage."

Or: Hey! Don't waste your time, guys. If you're looking for something good to do with your money, high-tech is not the place for you.

To tell the truth, Treston has held that view for over a year, since she started covering Israeli high-tech stocks. Last November, when most analysts were talking about opportunities knocking at the door, she was predicting a long bear market, noting that the technology world faced challenges not seen in the last eight, maybe even the last 20, years.

We concur with Treston. Even though Nasdaq is sinking to new lows day by day, and has gone back in time by six years, we do not think the worst is behind us. Far from it.

We said that as Nasdaq hit 2,000 and we say it again, as the tech index nears 1,000. After seven years of being told that high-tech is the best generator of wealth, we think the real situation is now crystal clear. Wall Street tech business isn't the biggest generator of wealth in history, it's the biggest mover of wealth in history.

Hundreds of millions of dollars have moved from investors, mainly pension funds, mutuals and companies, to tens of thousands of high-tech managers and workers, bankers and portfolio managers and all the rest of that crew that sold stocks or lived off capital market commissions.

Wall Street was diseased to the core, suffering from Enronitis - finagled financial statements; WorldComitis - inflation of profits by billions of dollars; Tycoitis - withdrawal of seven-digit salaries without disclosure; and of course, all those conflict-of-interest maladies affecting the underwriters, the analysts and the managers of other people's money.

The high-tech industry also boasted a few specialty sicknesses of its own, such as the establishment of hundreds of companies making superfluous products, and tremendous overcapacity.

Despite the shakeup on Wall Street, Nasdaq is far from being cured of its ills. There is too much money and more than a little denial among the industry leaders regarding the market's real situation.

It is tempting to buck the trend and cry out that it's time to get back into the market, to invest and develop, that the opportunities are out there - and indeed, that's what plenty of people are saying.

But if you look closely, you'll see that the ones repeating the mantra `Come baaaack' are usually people who make their living from managing other people's money. It's brokers, venture capital managers, portfolio managers, lawyers and accountants and managers of publicly traded companies still sitting on piles of the public's cash from the happier days.

Now look at the tycoons who are managing their own money. They are hardly rushing en masse back to the market to take advantage of opportunities lying around. Even when they are investing, they're putting in small amounts, at very low company valuations, and only after exhaustive examination of the lucky recipient.

They know exactly what they're doing. Many of them made their money during the Nasdaq boom, when securities were going for ludicrously high prices to institutional investors. They know a bluff when they see one, and it will be a long time before they return to the game.



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