Announcing The Mac Observer High Tech Aggressive Growth Stock Portfolio April 10th, 2000 "…historians will look back on our era as an extraordinary moment. They will chronicle the 40-year period from 1980 to 2020 as the key years of a remarkable transformation. In the developed countries of the West, new technology will lead to big productivity increases that will cause high economic growth - actually, waves of technology will continue to roll out through the early part of the 21st century. And then the relentless process of globalization, the opening up of national economies and the integration of markets, will drive the growth through much of the rest of the world. An unprecedented alignment of an ascendant Asia, a revitalized America, and a reintegrated greater Europe - including a recovered Russia - together will create an economic juggernaut that pulls along most other regions of the planet. These two megatrends - fundamental technological change and a new ethos of openness - will transform our world into the beginnings of a global civilization, a new civilization of civilizations, that will blossom through the coming century. Peter Schwartz and Peter Leyden, in the July 1997 issue of Wired Magazine "The public is there for one reason and one reason only, They are there to absorb the risk." Notorious short trader, Anthony Elgindy If you had an extra 100,000 dollars to put to work in the stock market what would you buy and how would your investments fare over the next few years? Would it grow at 97%, like my personal portfolio did in 1999, or more like the 10% to 20% that my father taught me to expect from a well managed investment plan way back in the 1980s. The stock markets are experiencing record levels of volatility and cynicism, while across the board the five year charts of most quality technology stocks scream market top, like the Riccola dude high on an Alps peak. Are we at the end of a secular bull market? Some smart money seems to think so. Bond prices are soaring and money is leaving the more speculative technology stocks searching for less exhausted hunting grounds overseas in Japan and Korea, or even in the uncool value-laden old economy of the Dow. But we were dumb and young and weren't flush (or even legal) enough to get in years ago to take profit today for that new yacht. Like most of the money in today's stock market, we missed the early years of the Dells and the Ciscos. Of course, most who were there took profit too soon only to get back in and take profit too soon again — and so on. Until we find ourselves all crowded together on a high windswept slope just below the summit. Freezing to death. RIIIIIIIIIIICCOLLLAAAAAAA! We're stoked on books like The Long Boom and understand better than the older generation that the Internet, photonics, nanotechnology, genomics, fuel cells and a myriad of other technologies are about to change the world in ways unimaginable to the bulk of humanity. I keep a copy of the July 1997 issue of Wired Magazine in my office as a reminder of the glory days. Glory days? We ain't seen nothing yet. Besides, with retirement a few decades off, we have time on our side. If the Nasdaq wants to tank, let it. We'll buy more! Heck, according to Ray Kurzweil, we (or our children) may live for centuries. No joke. With four digit PE ratios, many Internet companies will take that long to become stodgy value stocks -- not that one in ten will make it past 2005. Introducing The Mac Observer High Tech Aggressive Growth Portfolio. So, in our never-ending quest for knowledge, the Mac Observer is announcing an "on paper" stock portfolio. We are opening an imaginary trading account with a faux 100,000 bucks and naming it The Mac Observer High Tech Aggressive Growth Stock Portfolio, or the Mac Observer Stock Portfolio for short. Our goal is to achieve high growth within the various technology sectors. Some of the stocks we'll be following will be relatively safe bets like IBM and some will be purely speculative plays based on our optimistic view of technology's future, like Ballard Power Systems (BLDP), Xybernaut (XYBR), Celera (CRA), Protein Design Labs (PDLI) or Akamai (AKAM). Of course, we aren't playing with real money and our decision to buy or sell a stock should be in no way construed as a recommendation for you to do the same with real money. We'll announce our buying and selling plans in advance so you'll know we aren't picking our exit and entry points after the fact. Although we expect to do some trading and alter our opinion when new data warrants it, our goal is long term and we don't plan on daytrading or even following microtrends. In order to keep it simple we won't be shorting any stocks or playing the options market either. Nor is the Mac Observer Portfolio entirely free of ideological associations. After all we are a Mac-centric web site and proud of it. The Mac Observer Portfolio Rates Apple A Strong Buy! Duh. Our portfolio will include 100 shares of AAPL picked up at the opening price on Monday morning. Apple announces earnings on April 19th and we expect the company to beat estimates by a few pennies. Apple's expected annual growth rate over the next five years is 20%, while the PC industry's growth rate is18.6%. And that estimate is from conservative PC-centric dupes. Apple's PE ratio is 1.74 compared to the PC industry's 2.34. The company is growing faster than the PC industry as a whole but is priced lower than average. Ipso facto, Apple is undervalued. We also believe that most analysts have underestimated Apple's growth in the far east, the value of OS X, and Apple's world class management team AND Apple's renowned ability to surprise Wall Street with innovative new products. If APPL's trajectory continues we're looking at 200 bucks per share around Christmas. The Mac Observer Portfolio Buys 100 shares of IBM. IBM is one of our favorite stocks because, like Apple, this is one totally undervalued company. Perhaps because with earnings growth estimates of 13.3% over the next five years, IBM isn't exactly a nimble dot com and their PC unit has under performed. But, we believe analysts aren't looking closely enough at the company. IBM is one of the world's most formidable research and development firms, and as such should sport a PE ratio that reflects the actual potential of the breakthroughs about to emerge from IBM's vast laboratories, such as terabyte hard drives and a new high-k dielectric material to replace silicon dioxide in semiconductors. We are picking up 100 shares of IBM at opening price Monday morning. The Mac Observer Portfolio Rates Lucent an Accumulate. Lucent is going through an execution problem. Meanwhile, Nortel is eating their lunch with its new fiber optics technology which is claimed to be superior. We want a piece of Nortel too, but the market is big enough for both of these telecommunication giants. Moreover, Lucent, like IBM, has a huge R&D infrastructure that is likely to produce paradigm-shifting breakthroughs for the industry in the next several years. As far as shortsighted investors are concerned, the company isn't yet out of the woods and we see continued weakness to come in the next few months, into which we will average down. The Mac Observer Portfolio will pick up 50 shares of LU at the opening price Monday morning. Expect us to announce many more buys in the coming days as we build our portfolio. You can see the Portfolio at its permanent home. Your comments are welcomed.