Sell Banks, Buy Tech

So much for putting your money where your mouth is.

These have been rattling times for investors in the financial services sector. Between bailout hopes and outright failures, big gains and even sharper losses have riddled investors with more bullets than Al Pacino's Tony Montana character at the end of Scarface.

The overriding hope for those up to their back pockets in slammed sectors like banking and real estate is that things will get better. Can it get much worse?

It can. It can get a lot worse. I've seen it before.

So have you.

Say hello to my little friend
Where were you when the dot-com bubble popped? I know where I was, neck deep in tech, unfortunately.

It wasn't a pretty place to be, and maybe you were there too. I just hope you weren't standing in the same place the whole time. Contrary to the bubble imagery of instant destruction, the tech bubble took its sweet time in letting the air out.

The tech-heavy Nasdaq Composite peaked in March 2000. It was more than halved a year later, but it didn't end there. The tech market didn't bottom out until the fall of 2002, more than two years after the zesty, bubbly top.

Several prolific Internet stars failed along the way. You may not get misty-eyed as you pass the headstones of bankrupt firms Pets.com or Webvan, but how about a moment of silence for the investors who wrongly rushed in, shortly after the stocks collapsed under the assumption that the coast was clear.

Pets.com filed for bankruptcy in 2000. Tech investors were in for a couple of more years of hurt after that. I'm not suggesting that Pets.com is Bear Stearns or that Webvan is Lehman. Investors just need to know that vultures get eaten, too.

My market lesson is simple: Don't chase what isn't working. Follow what is.

Right now, the financial services market is a mess. The tech sector is what's working.

Say goodnight to the bad guy
Think about it.

As Thornburg Mortgage (NYSE: TMA  ) was fumbling margin calls, Apple (Nasdaq: AAPL  ) was introducing iPhones. As Citigroup (NYSE: C  ) was writing down assets, Baidu.com (Nasdaq: BIDU  ) was gaining search engine market share in China.

Do you really want to bet against that kind of momentum, for the scar-magnet pursuit of catching falling knives?

The past year has been a horrendous time for the banking industry, but in a tech-savvy world:

  • IMAX (Nasdaq: IMAX  ) lined up financing for the rollout of its digital projectors to reinvent the night out at the movies.
  • salesforce.com (NYSE: CRM  ) continued its scorching growth, as companies buy into cloud computing solutions to enterprise software.
  • Take-Two Interactive (Nasdaq: TTWO  ) shattered video game industry records, on the way to moving 10 million copies of Grand Theft Auto IV.

I know I'm in the right place this time. As a member of the Motley Fool Rule Breakers analyst team, I've seen the scorecard fill up with growing companies -- including Baidu.com, IMAX, and Take-Two -- as a result of being at the right place, even as the market continues to panic.

When the market bounces back, it won't be with the stocks that are still licking their wounds right now. Wall Street will reward -- and reprice -- the stocks where the fundamentals have improved during the lull.

Right now a team of my fellow Rule Breakers analysts are visiting with the executives of a whole slew of Silicon Valley companies. If you'd like to read our research and analysis from the trip, just click here, enter your email address, and let us know where to send them.

Longtime Fool contributor and Rule Breakers analyst Rick Munarriz has tried to catch a falling steak knife, and has the scar to prove it. He does not own shares in any of the stocks in this article. Take-Two, IMAX, and Baidu.com are Motley Fool Rule Breakers picks. Apple is a Motley Fool Stock Advisor recommendation. The Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (19)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2008, at 7:54 PM, draland wrote:

    check out 'bad-guy' Citi now...........!!

  • Report this Comment On December 04, 2008, at 1:51 PM, djemonk wrote:

    I've been in tech for 10 years now (my entire career). In those 10 years, this is the third time I've seen a major push for something like this. I anticipate seeing a 4th or a 5th.

    What these kinds of technologies boil down to is file synchronization. This is a solution in search of a problem. When you think of it, how many of your biggest problems in life are related to different version of the same files? It's just not a problem that warrants the level of investment that people have put into it.

    I'm passing on cloud computing.

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