BizNet OnLine Magazine, Mr. Money Know' s, How The Stock Market Works

Mr. Money - Know' s
By: Dana Goldfarb
Financial Writer
dana@biznetonline.com

Stock Trends For The Millennium

Are you tired of seeing the "New Millennium" and the Y2K stories on TV? If not, you’ve still got six more months to get your fill. Wait until the media starts interviewing all of those extremists who are packing up and running for the hills to wait out the coming January 1 catastrophes. That ought to fill a whole lot of TV time, and the result will be a whole lot of very freaked out people.

We’ll probably see an increase in food and fuel purchases, people will keep more cash on hand and maybe we’ll even get a sell off in the stock market. I certainly hope we don’t get any sell off, but it may become a self-fulfilling prophecy. Based on what I’m hearing from a number of my clients, they’d all like to be in cash by the end of the year. Now, I don’t know what’s going to happen in December. If I did I wouldn’t be writing this column from my desk in Los Angeles. But I’ll tell you this, if there is a fear-based market sell off, I’m going to back the truck up and load it full of stocks. Warren Buffett, the CEO of Berkshire Hathaway said in a recent annual report that "occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community.... We never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and greedy when others are fearful"(italics added). I’m waiting for the fear, and when it comes, I want to be buying in three sectors of the market - financial services, health care, and technology.

Why these three, you ask? Because over the last ten years these three industries have been the growth engines of the U.S. economy. Societal trends have driven the demand for their products and services, and these trends will continue to drive our economy well into the next century. In fact, since 1989, according to Lipper Analytical Services, these three sectors have been the best performing sectors of the stock market for 7 out of the last 10 years. If you want to consider telecommunications stocks as technology stocks then make it 8 out of 10 times.

As you know, past performance is no guarantee of future results, but it makes sense that there will be continuous action in these areas. Take financial services, for example. More and more people are investing and this is boosting profits at financial service firms. This is being fueled by the Baby Boomers who are hitting their peak earning years now, and they’re saving like crazy. And there are a lot of Baby Boomers. Also, the proposed repeal of the Glass - Stegall Act will allow banks to acquire investment and insurance firms. And by the way, how many times has your bank changed names in the last few years? Yes, there are a lot of mergers going on out there.

Let’s get back to the Baby Boomers for a minute. They are reaching 50 years of age at a record clip. In fact, the over 50 crowd is the fastest growing segment of the U.S. population right now. The money they spend on health related items like prescription drugs, surgical procedures, medical devices and Preparation H is going to soar. So, between the graying of America and the ongoing development of innovative new products, the health sector is ripe for further growth.

But, the area of growth you most often hear about is the technology sector ( "high tech"), and for good reason. Very simply put, technology saves people time and money by raising productivity and streamlining communication. As the global economy becomes increasingly

information oriented, demand for new technology should continue to be strong. Americans have an insatiable appetite for the stuff. Take personal computers for example. According to Market Data Retrieval, during the 1991-92 school year, the ratio of students to computers in public schools was19 to1. By 1996-97 it was 7 to1. Back when I was in high school the ratio was 3000 to 0. At the start of 1998, 43% of U.S. households had personal computers. Wow, that’s a lot of computers! And inside every computer is a bunch of software. According to Nathan Associates, the computer software industry is the third largest manufacturing business in the U.S. after automobiles and electronics. Microsoft, a software company, based on market capitalization, is one of the largest publicly traded companies in the entire world.

And how about that Internet?!? A U.S. Commerce Department report from April, 1998 stated that Internet usage is doubling every 100 days. In June 1997, Nelson Media Research wrote that more than 70 million U.S. adults currently use the "Net" on a regular basis. That was written two years ago; it doesn’t include American kids, or kids and adults from the rest of the world for that matter. Getting the picture yet?

So, in summary, there are powerful trends that are already in place that are driving the economy now and will continue to drive it into the next millennium. And speaking of driving, I’d better go out and buy a truck; the end of the year is coming!

Dana Goldfarb is a broker for Sutro & Company In Woodland Hills Ca.
And Can Be Reached At (818) 313-8700

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