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Tickers in this Article: syrg, easi, ebay, cx, dell, avy, crdn, msft
In the following picture, I compare the size of the sector (at the start of the period) to the amount of growth produced by the sector. The first bar, the blue bar, shows how many of the "fast growers" were in the sector. The second bar, the green bar, is the size of the sector relative to the total universe of stocks; e.g., seven year ago, utilities occupied about 9% of total sales. Only three of the 300 fast growers were utilities, so that is 1%. In summary, utilities, consumers, basic materials and transportation produced proportionally fewer, or far fewer, "fast growers" than the other sectors:

Among the things I find interesting about this un-scientific analysis are the following. Consumer cyclicals dominate 15% of the revenue pie, but produce only six (2%) fast growers. Financials occupy 16% of the revenue pie, but produce only 7% of the fast growers. Going in the opposite direction, health care occupies only 10%+ of the sales, but produces more than 20% of the fast growers. Energy out-produced, too. Finally, fully 30% of the fast growers are to be found in technology.

The above is based on official sector designations. I then took the list of the 297 fastest growers and re-classified a few companies where I thought they should be re-classified - it was not a tough call. The colored wedges are technology sectors. The large technology wedge includes software and hardware.


When I combine technology, biotechnology, medical equipment and "technology-in-disguise," I find that 60% of the fastest growers have been technology companies. Technology-in-disguise is the category where I manually re-classified companies from other sectors. These are my favorite companies and this is where I try to find good investments. They are growing companies but they are "miscast" because they do not operate in traditional sectors.

Often, that is because their sector has not been invented yet. If you can identify them before their success becomes obvious, you will do very well. Hindsight is 20/20 so I don't get any credit for spotting these now, but among the companies in this wedge is Synagro Technologies (SYGR). Synagro is classified in the Business Services sector; but they use "proprietary computer systems" and deploy scientific personnel across various technical disciplines to recycle biosolids and treat industrial wastewater. Engineering Support Systems (EASI) can be found in the Miscellaneous Capital Goods sector. I won't even begin to try and do justice to the broad array of engineering and technology products and services offered by this technology company. Also in this wedge is a company classified as Retail (Speciality Non-Apparel) but better known to us as eBay (EBAY). I guess eBay could be considered retail, hmmm....

It is a big mistake to believe that the bursting of the tech bubble disproved the exponentially transformative impact of technology. The bubble funded a lot of blatantly non-technology companies that were simply trying to sell stuff through a technology channel. The march of real technology only skipped a beat when the bubble burst. Technology is such an all-encompassing "umbrella-word" that it hardly means anything.

Technology encompasses information, biology, energy, medicine and materials. But technology also now disrupts and informs plain old business products and services. This struck home for me a few years ago when I read an interview with the CEO of Cemex (CX), a maker of cement based in Mexico. It is a well-respected, almost $20 billion market-cap company sporting an impressive long-term shareholder record. It makes cement in Mexico – you might think you'd be hard pressed to find something farther away from technology. But the CEO of Cemex was announcing a strategy to "e-enable" its global supply chain.

Cemex is now a featured case study in countless business schools as a result of its smart use of technology. They are the Dell (DELL) of cement! I am telling you, this is a noble pursuit: find the next Dell of an industry. Avery Dennison (AVY) makes little paper printer labels. Sounds familiar to me. Not so fast. Adhesive technology is moving very quickly - Avery is betting its future growth will be in radio frequency identification technology (RFID). Nothing is sacred or safe from the threat-slash-opportunity of technology.

Earlier in the year, we purchased Ceradyne (CRDN) for our Undiscovered Growth portfolio (at the time of writing it is up more than 50% since its addition). Talk about hopelessly miscast. In my database, this company is classified as Aerospace and Defense which comports with the Street's treatment of it as merely a supplier of body armor to the armed forces. The last I saw of Ceradyne's CEO, he was touring institutional investors trying to get them to understand (i.e., swimming upstream) that Ceradyne is an advanced (read: technical) ceramics company that happens to sell body armor. In my analysis, I found in them a company every bit as advanced and technical as any software company I've ever covered. I was relieved to go back to the relative calm and familiarity of enterprise software, I swear. Ceradyne, therefore, is a technology company, too.

In movies about alien invasions, a big shadow from the giant overhead spaceship slowly creeps over the surface of the globe. Technology is like that, gradually casting its shadow over all of the other sectors. I didn't really mean technology in the title: the one sector that matters. What I really meant is the unfamiliar. The unfamiliar includes companies which are inventing new sectors, typically by using technology to innovate their products, their processes, their channels or their customer experience.

I believe Jeremy Siegel is 180 degrees incorrect. I think buying into the familiar will lead you to "pile" in with the rest of the investing world that gravitates toward perceived safety in the face of uncertainty. Don't get me wrong, familiar names can create value. But they often create such value by reinventing (i.e., destroying) old businesses or incubating new businesses. Microsoft's (MSFT) long-term success could be read as a story of a quasi-monopolist leveraging its chokehold on the operating system, but I think its story is about a company that just keeps reinventing itself. Microsoft is the Madonna of software companies.

When it plunged into the games business, it created a whole new business - as if the purpose was to disassociate the new from the old! And as Microsoft moves forward, it will probably see its success as hinging on the ability to incubate a bunch of mini-Microsofts, each acting like the Microsoft of twenty years ago: hungry, innovative, and creating new markets rather than reacting to existing ones.


Be careful about linear extrapolations of recent history. Soft, choppy equity markets (can they be anything else judged in relation to the raging bull of the eighties and nineties?) will create all sorts of opportunities, just as the next revolution in internet technology flattens and interconnects everything. Plus nanotech. Plus biotech....

Portfolio managers at institutions will continue to "asset allocate" and carve up the market into neat, well-defined sectors that have a diminishing resemblance to the multi-faceted, swift-moving nature of economic reality. Inside these well-defined (but certainly not well-behaved) sectors little nuggets of the unfamiliar will be hiding. Companies with unfamiliar, hard-to-pronounce names are out there making hard-to-understand stuff that you can't find at your neighborhood hardware store. Many of them, however, won't be unfamiliar for long and may someday define tomorrow's sectors.

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