ALEXANDRIA, VA (January 31, 2000) -- Back in the Cash-King days of this portfolio, Tom Gardner once posed three critical questions for the Foolish investor to ask: Where is the world going, what companies have the capital structure to take it there, and how far out can I extend my investing time horizon?

On the heels of Bill's telecom series here in Rule Maker land, those three questions have prompted me to take a closer look at Nokia (NYSE: NOK) and its sprawling empire over mobile handsets and wireless network infrastructure equipment. According to Nokia, our world is moving towards a "Mobile Information Society," and the Finnish telecom giant is the leading provider of technology to make it happen. Let's dig deeper.

Wireless has been a hot buzzword of late in the investment community, but unlike other themes, I think we've only seen the tip of the iceberg with this one. An example: You probably still call your cell phone a "cell phone," right? (I know I do.) But Nokia refers to these devices as "handsets." Why? Because calling the Nokia 7110 a "cell phone" is like referring to your Swiss Army knife as a "screwdriver." Nokia's new handsets do a lot more than just telephony.

As I think about where the world is going, I look at my hands. In one, I have a Nokia 6100 phone, the "hot thing" when I bought it 18 months ago. In the other hand, I have my new Palm VII, an amazingly useful PDA (personal digital assistant) and the best toy I've ever gotten for Christmas. Flip up its antenna, and the Palm VII offers anywhere access to much of the Internet along with the usual assortment of PDA applications. So, that's two devices that are both essentially the same thing: a pocket-size wireless gizmo with a screen. Why not have one device that enables all this stuff -- telephony, to-do lists, calendar, address book, and Internet -- so that I can preserve one cancer-free hand?

As I studied Nokia's website today, I discovered that Nokia is already pursuing exactly such a dream device. The aforementioned 7110 handset is dubbed as "the first true media phone," based on such features as: large display, microbrowser, Navi(TM) roller, predictive text input, calendar, and phone book. The secret sauce that allows the Internet to function usefully on the 7110, despite wireless bandwidth constraints and such a tiny screen (96 x 65 pixels), is Wireless Application Protocol (WAP). You might recall that, last week, Bill mentioned WAP in the context of Nokia's "pardon me whilst I drool" expanding opportunities (Why Nokia Rules the Roost).

Quite simply, WAP allows mobile access to the Internet. WAP is based on open standards; it is global, license-free, and platform-independent. As defined by, WAP is "the de facto standard for providing Internet communications and advanced telephony services on digital mobile phones, pagers, personal digital assistants and other wireless terminals."

WAP-enabled handsets are able to access all sorts of communication and information services, including: e-mail, corporate data, news, sports and information services, entertainment, TV/movies, travel, electronic commerce transactions, and banking services. Further, because WAP and Web tools are similar, businesses will find it relatively easy to adapt existing applications and IT systems to the mobile environment. Nokia provides some excellent WAP background:

"Nokia was the first manufacturer to introduce an open standard messaging concept, which is called Smart Messaging. Smart Messaging allows Internet information to be delivered to any GSM phone which supports short message sending. As different solutions from other vendors began emerging, Nokia invited industry representatives to join an initiative to standardize the protocol for intelligent messaging over wireless networks, thus keeping the market from fragmenting. The result was the Wireless Application Protocol (WAP)."

If you're still sorta foggy on what WAP does, give Nokia's WAP demo a quick try. You'll see how Nokia's 7110 handset can interact with your PC-based calendar. I also recommend taking the 7110 for a spin with Nokia's 7110 Tutorial -- WWW Services. Once you see and use the Wireless Web -- whether on a Web-enabled handset or the Palm VII -- you'll be a believer. I, for one, have faith in Nokia's prediction that mobile phones will soon be the predominant means for accessing the Internet.

But just as important as where the world is going is where the world is staying. By that, I mean that when looking for long-term investments, we want to identify trends that are sustainable, and not just the latest fad. Nokia's leadership in wireless handsets and networks falls under a much larger and lasting umbrella: human communication. We as humans have a basic need to gab with one another. Nokia's innovations provide new ways to fulfill that timeless human need. I don't think it's too great a stretch to say that Nokia is to communications what Coca-Cola is to thirst.

Let's move on to critical question #2 and capital structure. Here, Nokia is solid and growing stronger. As Bill mentioned last week, Nokia's sales are growing at an annual clip better than 40%. That rate is simply phenomenal for a company with annual revenues approaching $20 billion. Also impressive is Nokia's balance sheet. The balance sheet is where we find a company's capital structure, or the way in which the company's assets are financed.

As always, our analysis of the balance sheet revolves around two simple ratios: cash-to-debt (higher the better) and flow (lower the better). As of 9/30/99, Nokia had 2.83x more cash than total debt. That's an increase from a ratio of 1.93 the year prior. For the flow ratio, Nokia rings in with an excellent 1.16 as of 9/30/99. That, also, is an improvement from the year ago period, in which the flowie had been 1.29. These metrics are well within our standards, and more importantly, both ratios are moving in the right direction.

Finally on our list of critical questions, there's the matter of investment time horizon. This one is subjective, so you have to answer it on your own. For myself (and this online portfolio), I don't consider buying a stock for a day if I don't think I have a good chance for holding it 10 years. Sure, I don't have a clue what communications advances we'll see in the next decade, so it's impossible to know with certainty whether Nokia -- or any stock for that matter -- is really positioned to thrive for that long. But investing is about making bets when the odds are in your favor. Nokia has battled its way to the top of the wireless world. With many more revolutionary wireless technologies on the verge of mass adoption, I consider Nokia to be a true-blue Rule Maker. Nokia's investment potential from here rides on the principle that, oftentimes, the best just keep getting better.

But don't take my word for it. Seriously. For example, if you took Bill's word for it last Wednesday, you might've thought Nokia's flow ratio was just a so-so 1.85. Nope, it's actually 1.16. Did we catch you with that one? Watch out, we Fools are prone to a bit of trickery now and then. Do your own research. Here are a few relevant links to get you started:

Nokia research links: By the way, Nokia reports earnings tomorrow. Also, don't forget that we're closing in on making a new purchase(s) for the MakerPort. Drop by one of the boards listed below if you'd like to make a case for a potential new Rule Maker. By the way, I haven't forgotten about the contest we proposed earlier this month to award an autographed copy of Rule Breakers, Rule Makers to whomever posts the best piece of Rule Maker analysis. Tonight's the last night to do so. We'll announce a winner in the coming week.

Be Foolish.

- Matt Richey