Net Net: They're Buying Tech Should You?

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Did Peter Lynch and Warren Buffett have it right after all? Is it possible to have a great portfolio without tech?

KEVIN LANDIS: It would have felt good over the past year. But it's generally accepted that you should have some exposure to tech.

PAUL WICK: There are going to be people able to do a wonderful job of growing their assets without technology. But given that technology is the largest growth industry in the world, you stack the deck against yourself without any tech stocks.

TIME: What if you don't want a mutual fund? What's the minimum number of tech stocks to own?

LANDIS: I know a lot of individuals who get very opinionated and may be really right about four stocks. But they own 10 because they think they ought to own 10. And guess which ones they get in trouble on? Numbers five through 10. It's safer to own mutual funds plus a few of your favorite stocks.

TIME: Paul, is four enough?

WICK: If your whole portfolio is eBay, Priceline, Yahoo and Amazon, you're not diversified. You're better off with one or two in software, one or two in networking, one or two in computer hardware and one or two in semiconductors.

TIME: What will be the dead-on tech trends during the next five years?

DENNIS MCKECHNIE: Wireless Internet, fiber-optic transmission and software--the FORTUNE 500 interacting with customers and suppliers--ought to be big.

TIME: Tech earnings have slowed substantially. When can we expect a rebound?

WALTER PRICE: I think most CEOs would say 2003 before everyone is doing well again.

TIME: Before they've worked off what they call overhang?

PRICE: It's not just the inventory overhang. Companies were spending tens of billions of dollars more than their cash flow. They have to rationalize and spend what they can afford to spend, not what they want to spend.

TIME: Will tech stocks underperform during this period?

PRICE: Not necessarily. You've had a major decline in the NASDAQ. So you've discounted a lot of these problems.

TIME: So has NASDAQ seen its lows?

MCKECHNIE: I think so.

PRICE: Yes. WICK: Yes. LANDIS: Probably.

TIME: How do you separate a tech company with a future from one that's speculative?

LANDIS: One simple question we ask is, Do they have customers who can't get along without them? Take the BlackBerry [a handheld from Research in Motion]. There are hard-core users who just can't get along without it. That's a great sign.

PRICE: Market share is important. If a company is many times larger than its nearest competitor, it has a great probability of riding through downturns.

WICK: Strong intellectual property is the key to huge profit margins and outsize stock-market returns.

TIME: You mean software? Patents?

WICK: Exactly. Unique know-how. A few years ago, I went to see a company doing their IPO roadshow. They refused to put up their slide show because they were concerned that venture capitalists would be in the room and take their business plan and shop it. That's a great example of a company that doesn't have a whole lot of proprietary content. If everything about the company can be put into a bunch of slides, then there's not much there.