Last column, I stood up for investors in ImClone Systems (NASDAQ:IMCL), perhaps second only to Enron among Wall Street's disgraced and dishonored. Enough said about Sam Waksal, insider trading, Erbitux, and my own speculative nature, but one point seems worth revisiting.
I might have implied that a company like ImClone can reward investors not with a steady flow of dividends and that historical average 6.3% appreciation per year, but with a cancer drug, Erbitux. Was I putting you on? And did I really take a jab at value investors, particularly the legendary Warren Buffett?
First things first: Regarding my throwing down with Mr. Buffett, are you "NVTS" nuts? I don't even get into it with Matt Richey. These guys are serious investors -- the sort you trust with your life savings. Compared to them, I'm just thinking out loud.
We built this city
But, yes, I regard Erbitux and its growing host of rivals as spawns of the great bull market. And I'll go you one further. I think the same of the Internet and much of the technology we take for granted today. Inexpensive capital raised by the likes of Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), AOL (now AOL Time Warner (NYSE:AOL)) --and to a lesser extent, busts like Global Crossing built the brave new world.
And when you get down to cases, that was our capital at work, even what was used to bail out the venture caps that made the initial risky investments. Even what went to the legions of techies who toiled night and day for years in pursuit of their illusive paydays.
The fact is growth investors and speculators built the Internet and the networks -- even the microprocessors and personal computers that allow fundamental analysts and quants to crunch numbers, once the purview of universities and government basements.
Did we pay too much? Probably. Did some investors get hurt? Definitely, but we might as well take the credit with the blame. Value investors? Well, they stoked the smokestacks, funded the insurance companies, and siphoned free cash from consistently profitable operations, all the while warning us of the impending market crash. (One bit of advice that proved valuable enough.)
In defense of value
To be honest, I have my doubts about the persistence of past financial performance, much less our ability to predict revenues, profits, or cash flow over any meaningful period -- especially one characterized by sudden bursts of change. But on some level, I do believe in valuation, and that buying value makes you money.
That's why I read Matt Richey's write-ups on the likes of Tupperware (NYSE:TUP) and Quality Systems (NASDAQ:QSII) religiously. That's why I listen to Tom Gardner go on and on about value, and read every word of his Hidden Gems letter (though in the spirit of full disclosure, I am his editor and would likely be fired if I didn't, or worse).
And if I had $10,000 to invest, you can bet I'd seek both gentlemen's counsel. But let's face it, consumer non-cyclicals, and basic materials, and homebuilders, and even retail may be great long-term investments, but can they be the next Microsoft -- can they really change the world? Benjamin Graham didn't build the Internet, you did.
Catapult
A few months back my old pal Josh asked what I thought would lead us out of the bear market. My answer: technology. The guy thought I was kidding, or nuts, or at very least, some sort of wahoo. Granted. But I truly believed it, and I still do. There's an adage that the last market's leaders never lead the next. Who comes up with these things?
Technology always leads. After all, what is technology, but progress, and what is progress but the future. The future pulls us into it, as it always has. Once technology was manufacturing, then it was retail, communications, health care, and so on. It's what allows us to do things differently today and tomorrow than we did them yesterday. Today, technology is, well, technology.
And frankly, the fact that technology investors have been through a horrible ordeal doesn't change that. It certainly doesn't change the fact that the seeds of real progress are not consistency and a craving for steady income, but necessity and inspiration in bursts. Nor, that this pair -- not last quarter's financials -- will lead us to the next life-altering investment.
So, what is it?
We can bet our lives that tomorrow's home runs come from some pool we'll call technology. But how much would we bet that we'll know faster or better than the market which technology, much less which individual player? A relatively modest chunk of our total portfolio, if we're wise.
But for all its modesty out of the gate, that tech allocation can dramatically affect your overall portfolio returns. As for my speculative money, it's been going to biotech. More and more, I'm convinced that this is where many of tomorrow's great investments turn up. Unlike a PC on every desktop, writeable DVDs, or hovercrafts, the novel drugs with which we'll fight disease are aspects of the future I envision clearly today.
Fighting the good fight
Would I prefer that technology execs (not to mention Wall Street) had resisted the bull market's invitation to enrich themselves with our money? Absolutely.
Do I apologize for having liked tech and for liking it still? Not a chance. We accomplished more in the 1990s than is reflected in today's stock prices. Productivity gains systemic to the next bull market are typically owed to the last. This strikes me as particularly the case this time around.
More than that, this same speculative "excess" granted many whose work is not yet done years in which to get it right. Stables of biotech pioneers like Celera Genomics (NYSE:CRA), Human Genome Sciences (NASDAQ:HGSI), Millennium Pharmaceuticals (NASDAQ:MLNM), Genentech (NYSE:DNA) are sitting on billions.
Those billions are ours. Let's hope -- yes, Fools, I understand that hope has no place in investing -- let's hope that some fraction of that money is put to good use.
Yes, Paul Elliott did say "get down to cases" and does own shares of ImClone and Celera, among other biotechs not mentioned in this column but found in his profile. Motley Fool is investors writing for investors.
