Steve Harmon


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Steve Harmon is one of the technology industry's most-recognized analysts and investors. He was named by Worth in its list of fifteen top visionaries (1999); by CBS.MarketWatch as one of four 'Best of Wall Street' analysts (1998), and by Smart Money as one of three rising stars in technology investing (2000).

Harmon is CEO of High Velocity Ventures (www.highvelo.com), which consults entrepreneurs and venture capitalists in building businesses, and investors understand the shifts in technology with research and information about private and public companies.

Commonsense lessons on technology stocks

  1. Earnings matter.

    Don't pay for promises, pay for actual earnings. Things change too fast to pay for next year's performances . If a company lacks earnings it's higher risk. Debate whether or not you're comfortable with that but limit your exposure anyway by making it a small part of your overall investment strategy. Every other metric in the world is only a piece whereas earnings makes the whole.

  2. Don't be wowed with the technology.

    Be wowed with the business model, management team, market share, technology and most of all, cash flow and earnings. The best technology doesn't always win. Xerox PARC developed most of the key improvements for PCs and networks but yielded none of the benefit directly to Xerox the company.

  3. Forget the peaks, study the valleys.

    Just because a stock is 50% off its high doesn't mean it's a bargain. Don't believe the newspaper headlines. As investors we learn more from mistakes sometimes than success. Study a company's ups and downs and economic cycles - and study its P/E, not how far has it fallen from its 52-week high. How far is it off a low and is the low in line with a 'reasonable' valuation? Reasonable being 10x to 30x earnings depending on the growth rate, or versus historical average P/E.

  4. Listen to what the executives say, but more importantly, listen to what customers say.

    Look at inventory pile up or order backlog. Are customers still buying its leading product or has another company moved in for competition? For example, in the ISP industry ask your local ISP what servers, routers and switches they use and why. Ask about pricing and performance.

  5. Learn the difference between ' betting ' and 'investing'.

    A large part of what tanked the market in 2000 was that most people seemed to be speculating. Federal Reserve chairman Alan Greenspan and the Federal Reserve with its interest rate hikes were not speculating.

    Research every company you want to invest in from a wide variety of sources, as well as the sector each is part of. I use several great resources including EDGAR, Zacks, First Call, Multex, Market Guide, Hoovers, a number of finance web sites, S1 filings, 10Ks, 10Qs, S&P, Media General, CSI, Bloomberg and more.

  6. Diversify investments.

    Stocks. Bonds. T-Bills. Real estate. With stocks, examine low, medium and high risk stocks and know why you own any one of them. Know what the company does and how economic cycles help or hurt the company. Limit your exposure to high risk stocks. If you cannot afford to lose your investment don't invest in high risk stocks.

  7. Cash - how much does the tech company have?

    Can it pay the bills for several years without selling equity or debt? Does it have a cash-flow positive business? Earnings to sustain itself? How much cash is on hand? Working capital? Thousands of companies don't have enough cash because they were funded by external financing - rather than sales and earnings - and investors are no longer interested in footing the bill.

  8. Stock options.

    Many tech companies issue stock options and it may dilute the shares outstanding (and earnings) dramatically. Typically 25% to 30% of tech companies are owned by employees . They all want to convert their options to cash some day. This option overhang is seldom computed by most analysts or investors. Look in the company filings and IPO documents to see what the total fully-diluted shares outstanding are.

  9. Establish buying and selling discipline.

    Always employ a stop-loss to limit your downside. Typical is making it 20% from the cost of the shares or the closing price if the stock climbs. On selling, if the stock has risen a set percentage - whatever you're comfortable with - sell some or all. Consider selling enough to cover your cost basis at the very least. Take profits. You may miss more climb but at least you have limited downside. Or if management shuffles happen quick or earnings fall short, consider selling.

  10. Never get emotionally attached to a stock.

    Love the company's cash flow or earnings but not the stock. Just because your father owned AT&T doesn't make it a great investment. Or a stock that did well before may not be a perpetual winner. In technology the industry changes rapidly and you must keep up with those changes.

www.highvelo.com

'A common investment paradigm is "don't try to hit home runs - you make the most money by hitting a lot of singles ". I couldn't disagree more.'

”Richard Driehaus



Global-Investor Book of Investing Rules(c) Invaluable Advice from 150 Master Investors
The Global-Investor Book of Investing Rules: Invaluable Advice from 150 Master Investors
ISBN: 0130094013
EAN: 2147483647
Year: 2005
Pages: 164

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