Appraising Science Investments

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An important way to reduce technology investment risks is to buy and hold a cross section of young, imaginative science companies each a leader in its chosen field. This article from the 1960s demonstrates that this "old-school" approach is just as relevant today.

The world stands at the threshold of a decade dominated by science as no era has been since the days of Isaac Newton. The opportunities present in well-selected situations in such clearly defined dynamic areas of growth as infrared, microwave, optical scanner, computer and data processing should considerably outweigh the risks normally involved in participation in the early-stage companies of young industries.

I find myself in agreement with the Loeb, Rhoades researchers, who pointed out that: "In this field where the process of creative destruction is so virulent, the indicated approach for those who want to participate to the fullest is to own a package of a number of well-chosen, smaller, lesser known companies.

"For the more conservative investor large companies giving some exposure to specific, attractive technologies would be the next best choice."

A free source for investment opportunities in science is Harris, Upham & Co.'s well-researched Science and Securities which is a "Review of Scientific Developments for Today's Investor."

Each month the Harris, Upham publication reviews what it considers as the significant developments in the world of science under such broad categories as electronics, nucleonics, drugs, chemicals, accompanied by a list of selected issues for each.

For investors who are willing to spend more time in seeking out promising young companies in the various embryonic fields of science and technology, the field to be covered is virtually unlimited, for every scientific, technical, business or trade publication or even daily newspaper might contain some information of interest to investors.

As guidance for checking out science stocks, you would do well to study the six guideposts which are followed by a blue ribbon science venture capital firm called Draper, Gaither & Anderson which operates in the twilight zone between investment banking and commercial banking with primary interest in budding technological fields.

Its six guideposts in appraising science investment are: 1. The company must have an unusual product line or service; 2. The product or service must have been substantially developed, and the time or cost of bringing it to the market should be predictable; 3. A ready market for the product or service must be visible; 4. The company must have qualified management either on the payroll now or readily available; 5. There must be prospects for substantial growth in sales and earnings in the foreseeable future; and 6. Ownership of the company must be limited and its securities privately held.

These guideposts are cited here in order to give you some idea about some of the things you should look for in a science stock. Since you are studying the situation as a prospective small stockholder, you could well discard some of those guideposts which are of interest only to a prospective major investor.

However, you should get off to a safe start by making sure that the young company in question has a "substantially developed unusual product line or service," with a "ready market" and "prospects for substantial growth in sales and earnings in the foreseeable future," or, in the case of a product under development, the "time and cost of bringing it to the market should be predictable."

If you come across a company which measures up to the above standards and which should be found to be in one of the embryonic fields of today such as microwaves, infrared, energy conversion thermoelectrics, thermionics, new photocopying and photographic systems, computers, or automatic data processing, it might be the stock to buy¬ówith, of course, the proper exercise of timing.

Timely advice then, and just as timely now. Investing in the future of the constantly growing science field often makes good financial sense.

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