One important concept investors need to understand is that stocks are forward looking. In other words, today's stock price reflects the climate for that stock probably three to six months down the road.

When you understand that stocks look forward, not backward, you begin to understand why current news usually has little lasting effect on a stock. You see, stocks already discount today's news.

This notion of forward-looking stock prices is best seen in the performance of cyclical stocks. Generally speaking, the time to buy cyclical stocks is not when times are good, but when times are bad. Indeed, cyclical stocks are their cheapest when their earnings are bad. Conversely, if you buy a cyclical stock after it has registered several quarters of strong earnings growth, your chances of buying at the peak are great.

There is no doubt that the technology sector is slowing. Demand for computers is easing, as is demand for a host of other technology products. Time to dump the stocks, right? Actually, the time to have dumped the stocks was several months ago, when the stocks peaked along with the peak in demand for technology products. In fact, many investors probably were wondering why technology stocks were declining at a time when profits were still strong. We now see the reason - the stock prices were anticipating the current slowdown in sales and profits.

Now, with the technology slowdown clearly evident, we are starting to see technology stocks hold up under further bad news. That is usually the first sign of a bottom.

Admittedly, it is difficult to buy stocks when the news is bad, and such buying will often cause you to be early. Still, if you are patient, buying quality, industry-leading stocks when the outlook is bleak for its industry (or, conversely, selling when the outlook has never looked better) is usually a profitable way to run a portfolio.

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