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8:30 AM Thursday, March 10, 2005: The key to "getting it right" in the search for the "perfect investment" is to wait and wait and then pick carefully -- very carefully. On the early morning of Thursday March 3, I wrote that oil was going to $62. It had closed the previous night at just under $52. Last night it closed at $54.75 and it's going higher. I hope some of you hold oil futures.

Today is the five-year anniversary of the Nasdaq 2000 high: Here's what's happened since. The chart is from The Wall Street Journal.



Nasdaq has recovered a little from its lows. Today you'll see a zillion articles talking about the anniversary and where Nasdaq is going -- the consensus being No Big New Boom, yet. I agree with that conclusion. There is nothing on the horizon like there was with the Internet to produce another mad spike. However, individual stocks and individual sectors will explode. There's simply too much hot money still around. Apple (AAPL), Google (GOOG) and even Taser (TASR) have been two mini-booms. There will be others. It's important for our sanity, pocketbooks (and amusement) to find them. Meantime, here are excerpts from today's USA Today piece. See if you you agree with it. Don't listen to Landis. He's the world's worst tech stockpicker.

10 reasons why Nasdaq won't recover soon
NEW YORK — Tales of quick riches, supersized gains and waves of "buy!" orders for tech stocks have been replaced by a new kind of speculation on Wall Street: bets on when, if ever, the once-mighty Nasdaq will ascend to a new peak.

It's been five years since the Nasdaq composite notched its record close of 5048.62 on March 10, 2000. While most milestones and anniversaries are cause for celebration, the memory of the hissing sound of the deflating stock bubble, rather than the signature pop, pop, pop percussion of exploding champagne corks, is the sound more likely to greet investors.

There are legitimate reasons for investors to embrace a more sober view of the Nasdaq. The most obvious negative is the fact the technology-packed index remains 59% below its high, despite standing at 85% above its bear-market low. In contrast, the blue chip-dominated Dow Jones industrial average is flirting with 11,000 and is just 8% off its peak.

History also waves a big caution flag. The aftermath of past speculative bubbles has been painful for investors. Of the giant boom/busts of the 20th century — the 1929 stock market crash, the gold rush in 1980 and the super spike of Japan's Nikkei stock index in 1989 — only the Dow, which plunged 89% from its 1929 peak, has eclipsed its post-crash high. But it wasn't easy: It took more than 25 years for the Dow to accomplish that Herculean feat, according to Ned Davis Research. The Nikkei is still 69% off its high, and gold is 48% below its peak.

"It's important to remember that bubbles — once popped — do not easily reinflate," says James Stack, president of InvesTech Research.

There's a wide range of predictions and theories on when the Nasdaq will post fresh highs, and what it would take. Forecasts range from a super-aggressive four years, to a decade, to a generation, to a lifetime. The consensus is that it will occur later rather than sooner. Here are 10 reasons why stock market experts do not expect a speedy recovery for the Nasdaq:

1. Flashback to go-go '60s? Working off excesses takes time. There's a strong chance the Nasdaq will go sideways and "remain flattish" for a very long time, just as the Dow did after a big rally pushed the blue-chip gauge above 1000 for the first time in 1966, says Carl Haacke, author of Frenzy: Bubbles, Busts, and How to Come Out Ahead, and economic policy adviser to President Clinton.

Driven by investors' fascination with the so-called Nifty Fifty stocks, such as Kodak and Xerox, the stock market racked up big gains until being stopped in its tracks by the 1973-74 bear market. In a market punctuated by periods of mini-bull markets and mini-bear markets, it took the Dow 16 years to hurdle 1000 for good. This period feels similar, Haacke says.

2. A "perfect bubble" is unlikely to be repeated soon. Investors' fascination with tech stocks in the late 1990s was fueled by a powerful one-two punch, notes Jeremy Siegel, finance professor at The Wharton School. The key drivers: the emergence of the Internet and Y2K fears, which sparked a blitz of buying of tech gear in an attempt to avert computer meltdowns when the calendar turned from 1999 to 2000.

"You had the culmination of these very important factors that generated huge amounts of attention," Siegel says. "But both turned out to be one-time events that resulted in the 'perfect bubble.' "

3. People have memories. The wildly inflated valuations of tech stocks were never justified, adds Siegel, whose latest book about stocks, 'The Future for Investors: Why the Tried and True Triumph Over the Bold and the New', was published this week. The book advises investors to avoid chasing hot stocks and to buy stocks that pay dividends instead.

"People learn. People have memories," Siegel says. "When they look back, they say, 'That was crazy,' and conclude that maybe the Nasdaq shouldn't reinflate."

4. Caterpillar is not in the Nasdaq. With growth in China white-hot, big energy companies and Old Economy products such as earth-moving equipment and truck engines made by big industrial companies such as Caterpillar are hotter commodities than computer chips, says Stephen Coleman, chief investment officer at Daedalus Capital.

Dub it the "Caterpillar" rally. The big stock market gains these days, and since the bubble burst, are coming from Old Economy stocks, not tech stocks. Since the Nasdaq peaked, Caterpillar is up more than 170%, and Microsoft is down around 50%.

When asked why the Nasdaq is faring worse than the Dow this year, Coleman responded: "Because Caterpillar isn't in the Nasdaq, and neither is Exxon." These non-tech names, Coleman adds, are also where the earnings growth is. Analysts expect Caterpillar earnings to grow 29% in 2005. Exxon posted 55% growth in 2004 thanks to high oil prices, a trend that shows little sign of abating.

5. Profit growth for tech giants has slowed. The mega-cap tech stocks, such as Microsoft and Cisco Systems, that powered the Nasdaq during the late 1990s, have experienced a sharp slowdown in profit growth. In 1999, Microsoft was the biggest stock on the planet; its earnings grew 40%; Cisco earnings jumped 32%.

But those days are over. Analysts expect Microsoft's earnings to grow just 4% in calendar 2005, and see Cisco's growth rate at 14%, Thomson First Call says.

"Growth rates at the big tech firms have slowed to a crawl," says Gary Kaltbaum, president of money management firm Kaltbaum & Associates. "Companies like Microsoft and Cisco are never going to be what they used to be."

Slower-growing big-cap techs will make it more difficult for the Nasdaq to blast higher, Kaltbaum adds. The index is weighted by the market value of its components, which means the biggest companies have the greatest impact on its returns. Even if smaller tech firms innovate and are rewarded with higher stock prices, it will be tougher for tiny companies to drive the index dramatically higher.

6. The "hot money" has moved on. The so-called smart money, such as hedge funds, tends to flock to areas of the market that are enjoying the biggest price appreciation. That's another negative for the Nasdaq, which has lagged the overall stock market, oil and real estate this year.

"The hot money wants to get into what is working," Kaltbaum says. "More and more, the hot money sees the Nasdaq is not working, so they are going into other areas."

7. Old leaders tend not to lead new bull markets. The big winners of one era are rarely the big winners in the next boom, says Marc Klee, manager of John Hancock Technology fund. He notes that energy, the big winner in the '70s, didn't regain its leadership position until last year. Similarly, growth stocks, or companies with accelerating earnings, dominated the 1990s, but value stocks, undervalued names with solid balance sheets, have led since the market topped in March 2000.

"It's tough to hold the leadership mantle on a sustained basis," Klee says. "For tech to become a megamover again, we'll probably have to wait a few market cycles."

8. Even a 100% gain isn't enough. Another psychological downer is the fact that even if the Nasdaq doubles in value from current levels, it would still fall 18% short of its March 2000 peak. "There's a lot of headroom to get back there," Klee says.

9. Tech stocks are still not cheap. As the Nasdaq neared its top in February 2000, the index was trading at 246 times earnings, InvesTech Research says. While tech stocks are not selling anywhere near those rich prices today, they still remain overvalued, InvesTech's Stack says.

The PE ratio of the Nasdaq 100 is currently 30, which, prior to 1996, was considered a "peak" level, Stack says. In October 1990, at the start of the great bull market of the 1990s, the Nasdaq 100 PE was closer to 15. "Bottom line, one could hardly call the majority of Nasdaq stocks bargains at today's levels," Stack says.

10. History says more pain is to come. In the grand scheme of bubble aftermaths comes a decidedly pessimistic observation from Pete Kendall, co-editor of Elliott Wave Financial Forecast. "The historic pattern is for manias to retrace the entirety of their advance," he says. In other words, before this is all over, Kendall says the Nasdaq will plunge back into the "triple digits," the level it was at in the early and mid-1990s. Says Kendall: "The Nasdaq still has a ways to go" — down.

But just because something goes up a lot, then goes down a lot, doesn't mean it can't go up a lot again, other experts say. Just as there are good reasons why the Nasdaq will stay down for the count, there are reasons why the Nasdaq might surprise people and levitate more quickly than some pundits think.

If tech has one thing going for it, it is its ability to come up with the next big thing, says Kevin Landis, chief investment officer of Firsthand funds. "I'm looking out my window in Silicon Valley, and it looks as dynamic as ever," Landis says. "There will be another generation of companies and another wave of technology."

He points out that new technologies and new markets are built on the success of past successes. The PC, he says, paved the way for the Internet, and the Internet paved the way for networking companies. Today, there's whiz-bang TV technology, cell phones that take pictures and satellites that beam radio into cars. Tomorrow will bring fresh innovation. "It's time to question the fear-driven markets and look for opportunities," Landis says.

The next big bull in the Nasdaq will come "when there is such disinterest, and they get so underowned — that is when the big move can be made," Kaltbaum says.

Don't rule out the chance of another bubble. "Bubbles will increase in frequency," Haacke says. "There is huge incentive for the world stock of capital to chase the next bubble. So whatever looks like the next hot thing in the global economy, tremendous amounts of money will move there very quickly."

Why not tech?

Good time to short Hewlett Packard (HPQ)? Now comes word that HP's printer business is doing badly. Today's Wall Street Journal has a piece headed" "H-P's Printer Business Takes a Hit As Rivals Muscle In"

"To understand the challenges facing Hewlett-Packard Co.'s cash-cow printer business, consider the deal that rival Seiko Epson Corp. put together late last year.

Trying to stoke sales of its $199 PictureMate photo printer, Epson launched a promotion featuring a $50 rebate off the product. It teamed with camera maker Nikon Corp. to offer an additional $100 off if a consumer bought a Nikon digital camera at the same time. And it joined with electronics retailer CompUSA Inc. to give another $40 rebate off the printer for CompUSA customers. After all the discounts for this limited offer, the Epson PictureMate's total price came to just $9.

The result: the PictureMate printer sold out last December, Epson says. "Epson was by far the most aggressive" printer maker, agrees Gary Bale, CompUSA's vice president of merchandising.

H-P says it kept prices of its comparable photo printers at $149 and above in the same period, though it offered some $50 rebates. Many of these photo printers had double-digit growth.

Epson's attack is just one of a new array of challenges facing H-P's $24 billion printer business. While the Palo Alto, Calif., computer and printer maker has dominated the printing industry, rivals such as Epson, Canon Inc. and Lexmark International Inc. have recently rejuvenated their product lines, teamed up with more partners and are aggressively ramping up their sales tactics. Dell Inc. is specifically targeting H-P by undercutting H-P on printer prices. And as H-P diversifies into other printing-related products such as copiers, it faces new battles with established players in those fields such as Xerox Corp. and Ricoh Corp.

All of this is taking a toll on H-P. In its last fiscal quarter, H-P disclosed that its core consumer-inkjet-printer sales fell 13% from the year-earlier period. While the overall printing unit usually posts 7% to 10% revenue growth, it eked out a mere 3% increase.

H-P's printer market share also has taken a hit. Its U.S. inkjet printer market share fell to 48.1% at the end of 2004 from 57.4% a year ago, and its U.S. laser printer market share declined to 38.9% from 45.7% in the same period, according to research firm IDC. H-P doesn't dispute the figures.

"Market shares don't usually shift that much in a mature market like printers," says Jennifer Thorwart, an IDC analyst. "This isn't a pretty picture. H-P's competitors are salivating."

The trend lines are worrisome because H-P's printing business is the crown jewel of the giant technology company, supplying roughly a third of total revenue and three-quarters of its overall profit. H-P earns huge amounts of money from printing because it has perfected a business model whereby those who buy its printers have to come back time and again to purchase new ink cartridges or laser toner for the machines. Profit margins on H-P's ink and toner remain some of the most envied in the technology industry, at more than 50% for toner and more than 60% for ink cartridges, analysts say...

"H-P's printing business wasn't something people worried about before, but now there's a chink in the armor," says Rob Cihra, an analyst at Fulcrum Global Partners. "If printing's profits deteriorate, that could knock the legs out from under H-P...."

King Arthur and the Witch
Young King Arthur was ambushed and imprisoned by the monarch of a Neighboring kingdom. The monarch could have killed him but was Moved by Arthur's youth and ideals. So, the monarch offered him his freedom, as long as he could answer a very difficult question. Arthur would have a year to figure out the answer and, if after a year, he still had no answer, he would be put to death.

The question?....What do women really want? Such a question would perplex even the most knowledgeable man, and to young Arthur, it seemed an impossible query. But, since it was better than death, he accepted the monarch's proposition to have an answer by year's end. He returned to his kingdom and began to poll everyone: the princess, the priests, the wise men and even the court jester. He spoke with everyone, but no one could give him a satisfactory answer.

Many people advised him to consult the old witch, for only she would have the answer.

But the price would be high; as the witch was famous throughout the kingdom for the exorbitant prices she charged. The last day of the year arrived and Arthur had no choice but to talk to the witch. She agreed to answer the question, but he would have to agree to her price first.

The old witch wanted to marry Sir Lancelot, the most noble of the Knights of the Round Table and Arthur's closest friend! Young Arthur was horrified. She was hunchbacked and hideous, had only one tooth, smelled like sewage, made obscene noises, etc. He had never encountered such a repugnant creature in all his life. He refused to force his friend to marry her and endure such a terrible burden, but Lancelot, learning of the proposal, spoke with Arthur. He said nothing was too big of a sacrifice compared to Arthur's life and the preservation of the Round Table. Hence, a wedding was proclaimed and the witch answered Arthur's question thus: What a woman really wants, she answered....is to be in charge of her own life. Everyone in the kingdom instantly knew that the witch had uttered a great truth and that Arthur's life would be spared. And so it was, the neighboring monarch granted Arthur his freedom and Lancelot and the witch had a wonderful wedding.

The honeymoon hour approached and Lancelot, steeling himself for a horrific experience, entered the bedroom But, what a sight awaited him. The most beautiful woman he had ever seen, lay before him on the bed. The astounded Lancelot asked what had happened The beauty replied that since he had been so kind to her when she appeared as a witch, she would henceforth, be her horrible deformed self only half the time and the beautiful maiden the other half. Which would he prefer? Beautiful during the day....or night? Lancelot pondered the predicament. During the day, a beautiful woman to show off to his friends, but at night, in the privacy of his castle, an old witch? Or, would he prefer having a hideous witch during the day, but by night, a beautiful woman for him to enjoy wondrous, intimate moments? What would YOU do? What Lancelot chose is below. BUT....make YOUR choice before you scroll down below.

OKAY? Noble Lancelot, knowing the answer the witch gave Arthur to his question, said that he would allow HER to make the choice herself.

Upon hearing this, she announced that she would be beautiful all the time because he had respected her enough to let her be in charge of her own life.

Now....what is the moral of this overly long story?

If you don't let a woman have her own way.... Things are going to get ugly

Harry Newton

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads. Thus I cannot endorse any, though some look mighty interesting. If you click on a link, Google may send me money. That money will help pay Claire's law school tuition. Read more about Google AdSense, click here and here.
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