Tech: Geniuses Need Not Apply
Market Q&A with David Webb, publisher of Webb-site.com and chairman of Hong Kong Mensa
December 8, 1999
Web posted at 4 a.m. Hong Kong time, 3 p.m. EDT
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In the investing world, good contrarians are hard to find. And in the institutional investing world, good contrarians find it hard to stay in a job. All brokers, let's face it, have a bit of bandwagon in them. You can only buck the trend with so much of other people's money. But if you're an individual investor, you can do whatever the hell you want. Usually, that means jumping on the bandwagon and getting a piece of that NASDAQ rally. David Webb has another philosophy altogether. He spends his days researching Hong Kong companies, occasionally trading in the small-caps, and routinely lambasting the big-caps on his homepage. In his spare time, the former investment banker runs the Hong Kong branch of Mensa, the astronomically high-IQ association that you may remember from a 1998 episode of the Simpsons. (That's where we at Market Q&A remember it from, and that's why we at Market Q&A figure Mr. Webb must know what he's talking about.)
Q: So David, what are you, personally, overweight in right now?
A: I don't give stock tips. I don't want to be charged with some sort of conflict-of-interest.
Q: Well, what is your interest, exactly?
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A: I want to promote corporate governance in Hong Kong, and sort of shatter some of the prevailing myths of the market. But you wouldn't have heard of any of the stocks I invest in anyway; they're too small.
Q: Hey, I don't know, the new GEM board's Timeless Software, which you knocked pretty heavily in a commentary two weeks ago, is pretty small, and I've heard of that.
A: That was a stunning transaction, wasn't it? Most importantly, it is not an Internet company, it is a software solutions provider, and that is certainly not worth the sort of valuations it's seeing.
Q: Well, you know those tech stocks. Do you invest in any Internet stocks?
A: No. The valuations on them are outrageous.
Q: So basically you're saying the U.S. bubble will burst?
A: It has to.
Q: Are you just saying that because you're British?
A: No, because when Wall Street crashes it's taking us all down with it.
Q: And you're not just saying that because you hate tech stocks?
A: I'm not Amish or anything. I love gadgets, I have a website, and the Web is going to do wonderful things for the world. One of these days we'll have Internet stocks that are a good value. But you can't value months-old Internet companies the way you value bricks-and-mortar companies, because the added value isn't there. It's purely a transaction.
Q: Sigh. Well, in the meantime, can Hong Kong become an information technology hub?
A: Near term, no. Medium- to long-term, yes, definitely. Hong Kong's got a lot of bright people, it just doesn't have too many smart people because the education system hasn't been geared toward information technology. But it will reinvent itself.
Q: You've spent a lot of time criticizing Pacific Century Cyberworks, so much that the Hong Kong government let loose a private detective to find out if you'd masterminded a vast Luddite conspiracy to undermine the Cyberport. But as a long-term play on Asia and the Internet, overvalued though it might be, what do you think about PCCW?
A: It is overvalued. I've dissected that at length.
Q: Are you telling me you're still a believer in price/earnings ratios?
A: They are a very helpful tool. The one stock that I've decided to recommend to my readers as a Christmas present is Boto, which trades at about 4.2 times earnings.
Q: What does it do?
A: They make, they claim, about 40% of the plastic Christmas trees sold in the United States. Most of the stocks I invest in are undervalued manufacturing stocks, and they're all small-caps.
Q: But isn't there safety in big-caps?
A: I think investors really put entirely too high a premium on liquidity. Look, if the money can flow in quickly it flows out just as quickly. In a panic, the blue-chips are the first to fall. During the crisis, the Hang Seng's mid-cap index fared a lot better than the blue chip HSI. It completely contradicts the argument that there's safety in size.
Q: So none of those small caps is the next new cyber stock?
A: No, I'm not a day trader. I very much believe that trading is 90% perspiration, and like Warren Buffet--who I very much admire--I would liken it to a bus ticket that you can only punch so many times. You can only trade so many times, and then you have to hold on. So I really seek out good value.
By Maureen Tkacik/TIME Asia
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