In May'98 we launched the T-Net 20 B.C. high tech index to track the
performance of BC-based public technology companies. The intent was to draw more public - and investor - attention to the technology sector in B.C. We selected the 20 largest companies, by market cap, and set the index to 1000 as of January 1, 1998.
At year end, the index stands at approximately 1400, an increase in value of 40% over the past year. Two years ago, on January 1, 1997 the value of the index was 812.08. Where will it be one year from now? Will it reach the 2000 mark in the year 2000?
We were off to a great start with the index hitting 1437.20 at the end of April. Then, as the broader markets retreated in the summer months, the index saw an August close of 855.80.
High tech stocks seem to be more volatile than the broader markets. The TSE 300 index, in comparison had a hi/low range of 7822/5336 during 1998 while the VSE index's range was 643/379 - which makes tech investing a lot more interesting and exciting.
For tech companies to grow and prosper, we need a healthy, positive investment climate.
For 1999, I'm keeping my fingers crossed that we'll finally see some tax breaks - both on the personal marginal rates as well as some much needed investment incentives. The province has hinted at some new "strategies" for the high tech sector. My biggest wish for '99 is that, as a country, we work on being more competitive globally than playing catch-up with our neighboring provinces. According to the Batelle Institute, U.S. companies plan to increase their R&D spending in '99 by 9.3%, following 9.7% in 1998. That means that we have to make sure that we've got an extremely positive R&D investment environment.
According to a recent Ernst & Young study, it costs a small technology firm in B.C. $50.62 on an after-tax basis to do $100 of R&D. It would cost the same company only $33.51 in Ontario and $33.90 in Quebec!
Another wish is that we'll see less government regulation. The new federal "tape tax" is another example of needless government interference. The tax, which is supposed to be in effect on Jan 1st, is expected to almost triple the cost of recording media (i.e. blank cassettes and CDs now costing around $1, will have more than $2 in tax added - supposedly to compensate the Canadian music industry
for illegal copying) but the crazy thing is that the rate won't be determined until the Fall of '99 (and then it'll be made retroactive). How can anyone run a business under such uncertainties? This'll certainly drive media-intensive companies south of the border. Bellingham isn't that far away, eh?
As for investment opportunities, keep an eye on the companies listed on the T-Net website. The T-Net 20 identifies the top 20 B.C. controlled companies by market value. Also on the website, you can quickly learn about all publicly listed B.C. companies. Furthermore, the T-Net100 lists both public and private companies. The private companies are good to watch in case they decide to do a
public offering of their shares. Companies like CREO have been looking at a public issue and maybe '99 will be their year.
Sierra Systems Group Inc., the fourth largest in the T-Net20 group, was one such company which went public in '98 and has traded between $21.75 and $36.00. Presently at $26.00, it looks like it might be a good buy.
You can also spot some of these private companies (i.e. future public company candidates) by looking at the investment portfolios of venture capital firms like Working Opportunity Fund (http://www.wofund.com) and Ventures West (http://www.ventureswest.com). You can bet that they'll be looking for liquidity on some of their better deals!
Another group of companies to keep an eye on is the "Venture Capital Pool" (VCP) companies which are listed on the VSE - especially those who plan to finance technology ventures. The VSE launched this program in June'98 as a vehicle for mobilizing private capital for the benefit of emerging enterprises. If you
invest in these companies before they make their technology acquisitions, you can make a good return if the VCP has good folks behind it.
What are some of my tech stock picks for '99? My favorite "buy-and -hold" choices are companies like Burnt Sand Solutions Inc (TSE:BRT, $.90) in the info-tech sector and Marine BioProducts International Inc (VSE:MBP, $.80) and Nortran Pharmaceuticals Inc (VSE:NRT, $1.25) in the biotech arena.
I wish you all a prosperous year of investing in technology companies. Just remember the Buffet Basics: invest for the long haul, invest in something you understand (if not the technology, at least be sure about the people), and look for good deals, of which there are many - especially the unspotted undervalued junior tech firms.
I'm optimistic that our T-Net20 index will reach 2000 by 2000. After all, where are the great investment opportunities if not in technology?
