Andy Garcia is sitting across the conference table, and we’re having a quick sandwich while world financial markets convulse with the latest upheaval the terrorist bombing of the USS Cole in Yemen. This may explain why he uses a single word repeatedly while discussing the current condition of the stock market and, more particularly, the technology stocks that he has analyzed and examined for most of the last 25 years: “Uncertainty.” At the AIM funds, tech investing is a serious business that has brought serious returns and moved the firm into the ranks of the 10 largest fund companies. All of its major funds have large concentrations of technology issues. Constellation, according to Morningstar, has a 51 percent commitment, Weingarten has a 61 percent slug, and even Value fund has a 42 percent weighting. All are well over the 29 percent that technology carries in the Standard and Poor’s 500 Index. AIM has put Garcia, a 25-year technology-investing veteran, in charge of the AIM New Technology fund, a fund so new you won’t find it in the Morningstar database. “I’m probably the oldest fund manager alive,” he jokes. Formed Aug. 31 of this year as technology shares continued to sink, there is a real chance that Garcia will find himself surrounded by screaming buy opportunities but won’t have the new shareholder cash needed to buy the tech shares that look best. If the carnage of the current market doesn’t croak investors altogether, however, the New Technology fund may be building its portfolio in one of the best buying opportunities in years. Given that there are a lot of us who think that “photonics” has more to do with “Star Trek” than the leading edge of current technology, I asked Mr. Garcia if he could draw a big, simple map of where we were and where we are going. “The markets have been nervous because of the euro (its decline), oil (its rise) and the election. That’s a lot of uncertainty,” he said. “When there is a lot of uncertainty, they take the multiple off the growth stocks. In addition, we’ve had a real run of earnings disappointments, more than I have seen in at least three to five years. Within the technology sector, a lot of transitions are occurring and they increase investor uncertainty still more.” Could he identify those transitions? “Sure. The first is the move from PCs, personal computers, to new devices. The PC market is pretty saturated but there are a lot of new devices Palm, Handspring, etc. that are taking hold. But when you have a transition, you also have a lot of uncertainty. Dell was a growth company, but now there is doubt. “Another transition is going from traditional packet switching to optical switching. This is interesting for Nortel and Cisco, but it’s also very uncertain. Companies in the optical switching space are growing 100 percent a year. The third transition is the move from client servers to Web enabling. A lot of applications are going to be available on the Web for use. That will change software and how it is used and sold. “The fourth transition is the move from wireline to wireless (in telecommunications). A lot will change when the 3G (third generation) products are available. Finally, there is genomics. It will start to take hold in the next five years. This is a technology that really hits home. It’s about health and life. It’s a new path of drug development. I think a lot of money will be made in this area.” I asked if his fund was attracting new investors. “It’s bringing money in. That means I can put money to work at a good time. You know, in Acapulco the cliff divers jump when the water is going out. They have to assume that it will come back in. “Well, tech investing is a little like that.” Whither the common good? Question: Social Security and privatization of part of the system are sure to get lots of discussion this political season. Whatever happened to the idea of the common good? Have we lost the notion of a common good to benefit our society? Why do working class and middle-class Americans pay payroll taxes on 100 percent of their incomes when high wage earners pay payroll taxes on 50 percent or less of their incomes? Why not raise the level on which payroll taxes are collected on income? Maybe you could set a lifetime maximum amount to contribute for those with really high incomes. How about Americans who have been the most fortunate, the financially independent, the ones who really don’t need the benefits, forgoing collecting Social Security benefits? I know they paid in, but we’re talking the common good. C.S., by e-mail Answer: In my experience, when people start talking about “the common good,” they are usually cooking up a plan to take someone else’s money and spend it. This is what politicians do for a living, and we should try not to emulate them. Already, the Medicare portion of the employment tax (2.9 percent, employer and employee combined) has no limit. It applies to all earned income, so there is no way of giving more of the bill to higher income earners. In addition, while few realize it, Social Security already redistributes from high earners to low earners. It does this through the benefits formula, which awards about six times more benefits for the first dollar of earnings than for the highest. This year, the employment tax is limited to 12.4 percent of the first $76,200 of earnings. Viewed another way, about 94 percent of all workers in America pay employment taxes on every dime of their earnings. Only 6 percent of all workers earn more than $76,200 a year. If the wage limit was raised and benefits were increased, the liabilities of the system would increase in parallel with the increased tax income. If the wage limit was raised and no benefits were added, the system would become even more of a welfare and redistribution program than it already is. Many fear that public support for the program would decline if it were clearly seen as welfare. Millions of Americans are already returning some of their Social Security benefits “for the common good.” They do this through the federal income tax. Questions about personal finance and investments may be sent to Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; or by fax: (214) 977-8776; or by e-mail: scott(at)scottburns.com. Check the Web site: www.scottburns.com. Questions of general interest will be answered in future columns.
