No area of investments is hot forever

Hot, hot, hot.

Technology is the country's sizzling investment area. Perhaps energy will be next.


But no matter what any financial adviser tells you about a stock or stock group he's touting, remember that no investment group burns hot forever.

At various times, health care, environmental services, telecommunications, consumer goods, biotechnology, gold and financial services have pushed up the thermometer. Other times, they've turned cold as ice.


There's a herd mentality brought on by any group's success, especially among mutual fund portfolio managers who grab on to the newest trend for dear life.

Diversity of investments remains important as you endure such crazes. Too often, novice investors jump in when a group is already cooling off. Even if an idea makes sense, that doesn't mean you'll profit from it forever.

"Any time you get lots of news coverage of a sector that can capture people's imaginations, you get high earnings expectations and stock price movements," explained John Markese, president of the Chicago-based American Association of Individual Investors. "That can lead to disaster, because people jump on when all that is already embedded in the stock prices."

Disappointing earnings and a collapse in stock price generally push a stock group out of favor, he noted. Value investing in out-of-favor cyclical industries makes more sense than picking a hot area, he believes, since you won't be paying too much for expected growth.

Times change. Consider winners and losers of the past decade, with gold, Japan and financial services in particular providing investors with both sweat and chills.

Best-performing investment objective among stock funds, according to Lipper Analytical Services, was international in 1985; the Pacific region in 1986; Japan in 1987 and '88; health/biotechnology in 1989, '90 and '91; financial services in 1992; gold in 1993; and Japan in 1994. Financial services lead the pack in 1995.

Meanwhile, the worst-performing investment objective was gold in 1985, science and technology in 1986, financial services in 1987, gold in 1988, real estate in 1989, Japan in 1990, gold in 1991, Japan in 1992, environmental in 1993, and Latin America in 1994. Latin America is the worst performer this year.

"There are essentially two investor groups, the initial hard-core fundamental professional investors and less-expert investors who came in after the rise began," noted John Teall, spokesman for fund-tracking firm Lipper Analytical in Summit, N.J. "On the way down, the uninitiated investor leaves more quickly and can push the stock price down faster and harder."


A good example of a "hot" stock these days is America Online, a leading provider of on-line information services that's trading at about 100 times earnings, he said.

Many portfolio managers have loaded up funds with volatile technology stocks.

"Technology is one of those industries and sectors benefiting from the improved competitiveness of U.S.

goods," said William Dodge, chief investment strategist for Dean Witter.

What's next?

"The next hot stock area will be energy, since demand is going up and supply [is] staying pretty much the same," predicted Stephen Leeb, editor of the Big Picture, a market-timing newsletter based in Alexandria, Va., whose portfolio had a 13 percent return last year. "We import about 50 percent of our energy needs in this country, relying on an extremely volatile part of the world to satisfy those needs."


Mr. Leeb's favorite long-term stock is Schlumberger Ltd., the world's premier oil-service company. The only tech stocks he's still recommending are Intel Corp. and Microsoft Corp.