-- You may have noticed that basic appliances do more these days. Washing machines can sense how big a load you're stuffing in them. Dishwashers can adjust their jets according to how many pans you've burned. Toasters can yodel.
The world is becoming increasingly automated — something that managers used as an argument for technology stocks back in the 1990s, at least until those stocks turned into little puffs of smoke.
As automation becomes increasingly real, however, tech stocks are worth a second look.
First, a word of warning: If you haven't guessed already, tech stocks in general are volatile. Many companies have a short life span: Remember Palm Pilots? Kaypro portable computers? Wang word processors? Apple and IBM aside, many tech stocks are best viewed as intermediate-term trades, not long-term investments.
And the current revolution in tech may make some big tech companies look somewhat quaint in the next few years. That revolution is cloud computing, a mildly annoying term that means using the Internet to store data and software. Rather than storing your data on a hard drive at home, you can now store your data on a gargantuan server system and access it via the Internet.
The advantage to you, of course, is that if your house gets hit by a meteor, your spreadsheets won't get blown to flinders along with everything else. (What happens if a meteor hits your company's server is a different matter, although most companies have backup servers.) Even if your home doesn't get blown to flinders, cloud computing means you can have access to your software and hardware virtually anywhere with an Internet connection.
For companies, cloud computing means cheaper delivery of software. Rather than buying, say, TurboTax at Best Buy, you can do your tax returns online, which saves production, shipping and other charges for Intuit, which makes TurboTax.
Even with the economic slowdown, Internet traffic is growing at significant rates, says Chris McHugh, senior portfolio manager at Turner Investments. "We have lots of room to go from here," McHugh says.
The obvious beneficiaries of cloud computing are storage and networking companies. "The last thing you want is to be trying to look at something on your phone and not being able to get there," McHugh says. "There will be be multiple billions spent on equipment over time."
Tech is a big sector, and not all sub-sectors will fare equally well. Currently, for example, semiconductor inventories are somewhat high, which usually doesn't bode well for semiconductor manufacturers. For example, Microchip Technology, which makes a broad array of chips, cut its earnings outlook Thursday.
And, for what it's worth, tech tends to fare well in cold weather. The old rule of thumb was to buy tech stocks in November, around when the American Electronics Association (now TechAmerica) holds its annual meeting, and sell them in May, around when West Coast investment banker Hambrecht & Quist had its conference.
The association with cold weather isn't entirely coincidence. Consumers tend to buy electronics during the holidays, and businesses do much of their tech spending in the first and second quarters, says Sam Stovall, chief equity strategist for Standard & Poor's Capital IQ. Tech stocks average a 6.9% gain in the fourth quarter, vs. 4.7% for the S&P 500, he says.
Will consumers spend extra on electronics this year? Given the economic picture, that's not terribly likely, although no one ever went broke betting on Americans' ability to spend. And, says Paul Wick, manager of Columbia Seligman Communication and Information fund, the outlook isn't that dire. "This isn't a repeat of 2008," he says.
For most people, a mutual fund is the best way to go for investing in tech; the best are in the chart. Fidelity Investments, which slices the sector in a number of ways, dominates the field, if only because some sub-sectors do better than others. Two broad-based funds that deserve mention are Red Oak Technology Select ( ROGSX), up 38% the past five years, and RS Technology ( RSIFX) up 37%.
We may not have yodeling toasters yet, but we are in the middle of a significant change in the way we use tech. A tech fund can help you get a piece of that.
John Waggoner is a personal finance columnist for USA TODAY. His Investing column appears Fridays. See an index of Waggoner's columns. His book, Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments, is available through John Wiley & Sons. John's e-mail is firstname.lastname@example.org. On Twitter: www.twitter.com/johnwaggoner.