A virtual gold rush into computer-technology stocks, including the most speculative variety, plus a favorable reception for the government’s monthly auction of two-year notes gave the market a positive tone Tuesday.
What started out as an off day in blue-chip stocks turned into the fifth consecutive record-high close for the Dow Jones industrial average. The 30-stock index added 7.22 points, to 5078.10, on New York Stock Exchange volume of 409 million shares.
Broader blue-chip indexes also advanced, although the breadth of winning stocks over losers remained weak.
The Treasury’s auction of $18.2 billion of two-year notes brought a lower-than-expected yield of 5.48 percent, the lowest yield at the two-year auction since March 1994.
Computer-technology stocks boomed, prompting a gain of 20.73 points, or 2 percent, to 1050.05, on the Nasdaq composite index.
The 30-stock technology index at the Chicago Board Options Exchange gained 7.15 points, or 4.5 percent, to 167.29.
A major spur to the tech-stock rally was a decision by the investment firm Goldman Sachs to place Internet-related stock Netscape on its recommended list. The firm recently withdrew software giant Microsoft from its recommended list. Netscape soared $20, to $131.
Some investors and technology writers see a titanic, winner-take-all battle between Internet-related technology, represented by Netscape, and “traditional” personal-computer technology, represented by Microsoft. Goldman Sachs’ recommendations appeared to fuel the battle. More likely, this “battle” is a marketing strategy designed to keep investors as well as computer-users buying.
The boom in computer-technology stocks is following–not leading–the rally in blue-chip stocks. American companies are being driven by Wall Street to cut costs through investing in capital and disinvesting in labor, a process known as improving productivity.
Jerry Jasinowski, president of the National Association of Manufacturers, pointed out the dark side of this scenario Tuesday in an interview with Reuters. “Overall (employee) compensation on a weekly or monthly basis is not adequate for consumption buying patterns,” he said. “You can do all you want in productivity, education and training, but you’ve got to get sufficient short-term demand to supply the income to supply more product longer term.”
Follow-up: The list of investment-oriented books in Monday’s column generated considerable interest. As I indicated, the list was neither comprehensive nor even my own. I welcome your suggestions for other books–though not from authors or book publicists.
One reader said the list should have included at least one book on mutual fund investing. Yale Hirsch’s “1995 Stock Trader’s Almanac,” which was the source for most of the books listed Monday, does include such a volume: “Jay Schabacker’s Winning in Mutual Funds” by Jay Schabacker and MarjoryRoss (AMACOM Books).
There are no doubt many fine books on the shelves devoted exclusively to mutual fund investing, but the premise of Monday’s list was books that were useful for people trying to understand basic principles of investing and the financial markets. Reading a book on mutual funds before you have some grasp of the markets and the principles of investing is like studying the new-car brochures before you learn how to drive a car or know the rules of the road.
Local news: Chicago-based Wanger Asset Management, one of the nation’s most successful long-term investors in small-company growth stocks, has reopened its two mutual funds for new investors.
Ralph Wanger, president of the money-management company, said the initial impetus to open the funds was net redemptions in the Acorn International Fund. “It got down to the point where we were starting to have to sell good (investment) positions to meet redemptions,” he said.
Ironically, the $1.2 billion International Fund has performed better this year, relative to its peer group, than the $2.2 billion Acorn Fund, which has some non-U.S. holdings but principally is a domestic small- and medium-capitalization growth fund. Total return of the Acorn Fund is about 16.9 percent this year, well behind the 26.4 percent return of its peer group of funds, according to Lipper Analytical Services; the International Fund is up 4.6 percent, slightly better than the 3.7 percent return for its peer group.
One reason the Acorn Fund has, in Wanger’s words, “done lousy against the competition,” has been its avoidance of primary technology stocks. Wanger believes better long-term money can be made by investing in companies that use technology, not technology companies themselves. The Acorn Fund beats the average of its peers on the basis of five-year returns.
Another reason to reopen the funds was an expansion of the organization, which formerly was part of Chicago-based Harris Associates. Wanger Asset Management now numbers 50 employees, including 12 investment professionals, Wanger said. The Acorn Fund, begun in 1970, closed to new investors in July 1990; the International Fund, begun in 1992, closed in February 1994.
– After the close of trading, Chicago-based System Software Associates posted a 157 percent gain in fiscal fourth-quarter earnings per share to 59 cents, 2 cents below the consensus forecast of analysts compiled by Zacks Investment Research.
– Also after the close of trading, Spyglass, the Naperville firm that licenses the popular Enhanced Mosaic software used in browsing the World Wide Web’s Internet, announced a 2-for-1 stock split to be paid Dec. 20 to shareholders of record Dec. 6.
