Don't buy tech stocks! They're overpriced. Buy tech! But be choosy. You hear it both ways these days, even from us.
We've been battered for the past few weeks with revenue and earnings warnings from many tech firms. The bad news came from firms like Intel (NASDAQ:INTC), Cisco Systems (NASDAQ:CSCO), and Hewlett-Packard (NYSE:HPQ). The common theme, translated from press release-ease, could have read: "Umm. Remember that huge demand we predicted? Yeah, funny thing. It didn't materialize, so now we're sitting on too much inventory. Oh, and those competitors we told you not to worry about? Yeah, they're eating a chunk of our lunch."
But just when you think you have this whole tech thing figured out, along comes an industry-wide prediction that muddles things further. Industry watcher IDC predicts increased demand for PCs, at least from businesses. Hey, more PCs means more need for stuff like network hubs, servers, software, mouse pads, backache pills, and everything else, right? Cool. Everyone, back into tech!
Didn't fall for that? I hoped not.
Does that mean I think you should avoid tech? Also a big "no." Instead, think like that spoon-bending kid in the Matrix and repeat to yourself, "There is no tech industry... there is no tech industry."
What am I talking about? Consider Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Stock Advisor pick Dell (NASDAQ:DELL), and Hidden Gems standout Transact Technologies (NASDAQ:TACT). What the heck do they have in common? Answer: All depend on electricity. Seriously, the real answer is: Not a ton. They succeed based on performance in their specialized business spaces.
That's why concentrating on artificial constructs like industry sectors is a bad move when you invest in individual stocks. You know that old saw about missing the forest for the trees? Too often we investors make the opposite mistake: We miss the trees for the forest. Look carefully at tech or any other so-called sector. Sure, there may be plenty of rotten wood ready to fall with the next storm, but there are also strong trees that will not only survive but thrive.
Buffett didn't sweat the economy. Lynch bet against predicted trends all the time. They made bundles by finding the good wood. You can do it, too.
Seth Jayson spends a lot of time combing the forest for investing metaphors. At the time of publication, he had no positions in any company mentioned. View his stock holdings and Fool profile here.
