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Stop obsessing: Tech sector's no different than any other

I was going to rant here about the absurd faith people continue to show in technology stocks when I realized that I have what some might see as a small credibility problem.

You see, I bought some Nortel Networks shares the other day.

My expectations for Nortel aren't especially high, which is why the purchase amounts to not quite 1.5 per cent of my registered retirement savings plan account. Still, I figure that the outlook for the telecommunications market will have to improve eventually, and that Nortel will benefit when it does.

Lots of other investors are at least as optimistic about tech stocks, maybe too much so.

The polling firm Ipsos-Reid issued the results of a survey yesterday in which 47 per cent of the 1,001 participants said they were somewhat or very confident in the investment potential of companies in the tech sector. Another 52 per cent said they were not confident, but you can just as well argue that there's an even split between tech believers and non-believers (the margin for error in this mid-April survey was plus or minus 3.1 percentage points).

There's more. Yesterday, all the major North American stock markets surged on the strength of a quarterly report from Cisco Systems that beat profit estimates and offered an encouraging outlook for telecom spending. Nasdaq, the barometer for the entire tech sector, rose by almost 8 per cent while Cisco was up close to 25 per cent.

The markets have been in a real funk lately, but it was nothing that a bit of good news from a tech stock couldn't cure.

It's tough to say the extent to which technomania lives in the hearts of investors right now.

The Ipsos-Reid survey found that 38 per cent of participants were less confident in tech stocks than they were a year ago, while 12 per cent said they were more confident.

But you have to balance this apparent skepticism against signs of continued enthusiasm.

For example, on-line discussion forums devoted to stocks are still heavily tech-focused. On StockHouse Canada's BullBoards yesterday, Nortel was by far the hottest topic of discussion.

Despite two years' worth of carnage in tech stocks, mutual fund companies are still taking in millions of dollars in new investments.

Money flowing into the $338-million Altamira Science & Technology Fund actually exceeded outflows by $15-million in the 12 months to March 31. Altamira spokesman Dwarka Lakhan said he was so surprised by the number that he had to check it twice.

Here's the cause of Mr. Lakhan's surprise. Over the past 12 months, the fund has lost 21.7 per cent. And over the past three years, the fund has made a puny average annual 2.5 per cent, while the average for the tech fund sector was a loss of 8.1 per cent.

Other tech funds have had net outflows of money, but the severity varies. The $226-million AIM Global Telecommunications Class had $90-million in outflows during the 12 months to April 30, but also took in $78-million. That's not bad, considering the one-year loss of 45 per cent.

The $487-million Trimark Discovery Fund, a more conservative tech fund that has lighter losses than most, lost $56-million more than it took in during the past year.

There's an obvious greed-based explanation for why some people have stuck by their tech investments or bought more. They're simply hoping for a reprise of the huge gains that tech has delivered in the past.

As yesterday's performance by the Nasdaq shows, this is certainly possible. Unfortunately, rallies like these tend to be obliterated in a matter of a few days' worth of declines.

Another reason for tech's enduring appeal is the way it makes its presence felt in our daily lives. Computers, palm pilots, cellphones -- these devices are so darned essential that it's hard to imagine they're also not great investment opportunities.

Whatever your reason for clinging to tech, get over it. Stop obsessing and learn to regard tech stocks and tech funds just like any other sector of the market.

Yes, tech funds are no different than emerging markets funds or precious metals funds. They make a nice complement to a well-constructed portfolio, sort of like a sideshow.

This is my thinking on Nortel. There's a fair amount of boring stuff in my portfolio (dividend-paying stocks, for example), so I'm willing to make a small bet on something speculative.

As for the question of how confident we all are about tech as a place to invest, this is precisely the sort of debate that feeds the idea of tech being special in some way.

It's not.

© 2007 The Globe and Mail. All rights reserved.

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