Tech Talk: A Portfolio of Technology Stocks

Well, it appears that the Fed didn’t disappoint and either did today’s jobs report. The news cheered up a gloomy Wall Street as evidenced by recent market action. With the S&P breaking through its all important 1400 ceiling yesterday combined with the VIX (volatility index) hanging below 20, it appears that we have the making of the next bull market. As always, the perennial question is: What to buy?

A guest commentator on CNBC yesterday said that institutions are returning to the market and are rotating some of their positions out of sectors that have been performing well, such as materials and commodities, and pumping money into technology stocks. Although disappointing earnings from Sun Microsystems stalled the tech rally today, I still think the entire sector has been oversold and is poised for a turnaround. (Many of the tech ETFs were down 25%-40% from just a year ago.) If you look at their charts, you can see that they’ve all been rising steadily since the middle of January when the overall market hit its nadir. Rather than buying these ETFs outright, I thought it might be fun to cherry pick the best of each and construct our own portfolio.

Portfolio Construction
What I did was to look at the charts of the top ten holdings of each of the following ETFs and then select the top one or two stocks whose charts I found to be the most compelling:

IAH & XLK – Internet Architecture/Technology: Cisco (CSCO) & Network Appliances (NTAP)
SMH – Semiconductors: Intel (INTC) & Xilinx (XLNX)
TTH – Telecom: AT&T (T) & Verizon (VZ)
BDH – Broadband: Research in Motion (RIMM)
IIH – Internet Infrastructure: RealNetworks (RNWK)
IGV & SWH – Software: Adobe (ADBE)
HHH – Internet: Earthlink (ELNK)

You’re probably wondering why Apple and Google aren’t on the list. The main reason is that I wanted to limit the portfolio to more reasonably priced stocks so that the portfolio will be more equally weighted in terms of price. (All the stocks listed above are under $40.) Also, Apple has run up almost 30% in just the last two months, although that’s not to say that it can’t go a lot higher which I think it will.

What I’m going to do is to set up a dummy portfolio using 100 shares of each of the above ten stocks at today’s closing prices. We’ll be checking in periodically to see how its doing and if, indeed, techs are ready to rock ‘n’ roll as some think they are. One plus of constructing your own fund this way is that it offers a bit of diversity across the tech sector. If you buy just one ETF, you’re restricting yourself to that one niche within the entire tech realm. This way, at least, you’re spreading your risk over a wider area. The negative to this approach is that it’s costlier in terms of the overall dollars you’ll need to invest and commission costs will be greater, too. The fun part of this, though, is that you get to be your own portfolio manager. Of course, if your fund doesn’t perform well, then you’ll have nobody to blame but yourself, but if it does, then you’ll be able to own your bragging rights. Just don’t be a bore about it at cocktail parties, okay?

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