As soon as Kwame Bendele learned how to read, his father provided him with practice material. It wasn’t exactly see Dick and Jane run. Rather, it was see Dick invest in value stocks and see Jane diversify her portfolio. Bendele, now 36, was raised on Chicago’s South Side and learned his letters over the financial reports in newspapers.
Bendele’s father, who retired after 40 years at Campbell’s Soup-where he began as a window washer and retired in quality management-knew the value of hard work. He encouraged his son to work odd jobs at their church and local bank starting at age 12. His father even helped Bendele open his first brokerage account at A.G. Edwards-when he was all of 15 years old and had less than $1,000 saved up from those odd jobs.
Bendele’s first broker? John Rogers Jr., long before he headed Ariel Capital Management. “I learned his philosophy,” says Bendele, “and it still influences me today: focus on the fundamentals, including product quality, industry health, management record and price-earnings ratio.”
Between Rogers and his father, Bendele, now an assistant vice president for Employer’s Reinsurance Corp., a division of General Electric, in Chicago’s Loop, and a homeowner with wife Charlotte in Bartlett, Illinois, learned the investing lessons that prepared him for nearly any market: set goals, do your homework and diversify your portfolio.
Then the technology craze rolled in and revolutionized the stock market. Stock prices soared-even without earnings (at the height of the madness, Yahoo!, AOL, Excite and DoubleClick all went up more than 300%, in one year). Standby fundamentals such as price-to-earnings ratios, which signal how much you are actually paying for the stock, went out the window. Bendele, long schooled in careful investing, was able to adapt his approach to this new environment. This just goes to show that father does know best-you just need to keep updating the model.
So what are today’s rules for choosing a new-economy stock? Well, you still have to do your homework, balance your portfolio and review it regularly. But in this brave new world, you must find creative ways to value a stock and diversify your holdings. While Federal Reserve Chair Alan Greenspan recently noted that the market was “groping for the appropriate valuation of these [Internet] companies,” these fundamentals can guide you through the process. Here are five guidelines to help you shop smart for tech stocks and successfully incorporate them into your portfolio.
UNDERSTAND YOUR INVESTING GOALS, TIME FRAME AND RISK TOLERANCE
You can’t let market movements dictate your investments, or your strategies will be as up and down as the Dow and Nasdaq in early April. So before you dive into the next Yahoo!, consider your life goals. Bendele learned this at his father’s knee. “My dad taught me that you go through phases of life-earning and accumulating, maintaining and then giving it away. You need to know where you are.”
Jacquette M. Timmons, president and CEO of Sterling Investment Management Inc., a New York-based investment advisory firm, agrees. “I would not focus