Feature: Building a Computer for Investing

After seeing worldwide unit personal computer (PC) shipments decline by 4.2% in 2001—the first annual decline since 1985—the PC industry returned to its growing ways in 2002 with worldwide PC shipments increasing by 4.7% according to Gartner Dataquest. Preliminary data for 2002 had pointed to a lackluster sales year, with unit sales increasing a modest 2.7%. However, once the numbers were counted, Gartner revised its 2002 sales figures up some 16 million units to 148.1 million units sold worldwide for 2002, compared to 141.5 million units sold in 2001.

Analysts were much more optimistic for 2003’s prospects in January, as Gartner predicted unit sales would increase by about 8%. Since then, they have revised their estimates upward to 161.3 million units shipped for 2003, an increase of 8.9% over 2002. For the second and third quarters of 2003, worldwide PC shipments have increased by double-digit percentages.

Spurring the rebound in PC sales the past year has been strong interest in laptop systems due to falling prices, improved performance, and growing interest in wireless technology. For the PC industry in general, it continues to be a buyer’s market as manufacturers face fierce price competition for consumer dollars while continuing to push the technology envelope.

In this market environment, we present our annual computer guide. The recommendations in our guide are geared toward the mainstream investor who is performing investment tasks such as portfolio management, stock analysis, and charting, as well as general-purpose Web surfing, E-mail, word processing, and spreadsheet building.

For the first-time PC buyer, deciding which system is right for you can be an intimidating proposition. Complicating the problem is the virtually unlimited number of systems available—from the ultra-cheap Microtel Linux-based system sold at Walmart.com for under $200 to the $3,000+ high-end media center system. For most of us, the right PC lies somewhere between the two extremes; however, that still leaves a lot of territory to cover. With a little research and education, you should have an easier time selecting a system that offers the right balance of power and flexibility to serve your computing needs now and in the years ahead.

Defining Your Needs

The worst thing you can do when deciding on a new PC is to buy a system that is inadequate and will therefore need to be replaced quickly. Alternatively, you do not want to waste your money by spending too much for bells and whistles you won’t put to use. To avoid these missteps, it is wise to spend some time determining the tasks you will want to perform with your system. Ideally, you will identify what it is you wish to do and purchase a system accordingly. If all you are looking for is an on-ramp to the Internet in order to surf the Web and send and receive E-mail, a high-end system is most likely a waste of money. Likewise, if you wish to perform advanced technical analysis, such as system development and backtesting, or run more system-intensive software, a basic system would not be the proper choice either.

Of the utmost importance when buying a PC is that you choose one that supports the software you wish to use. A long-standing complaint among Macintosh users is the limitations they face when trying to locate specialized investment programs for the Mac. It is for this reason that we once again recommend Windows XP systems over Macintosh systems for members looking to run a wide range of investment-related software titles.

At this point in time, Windows XP is the operating system of choice for individual investors. Both the home and professional versions of XP are designed off the Windows NT platform, which is inherently more stable than other Windows predecessors such as 95, 98, or ME. Windows XP supports a wider range of hardware add-ons and even software programs than previous Windows versions. A shortcoming of prior Windows NT releases was its weakness in supporting certain Windows-based software. Windows NT and 2000 were primarily designed for the corporate marketplace, so Microsoft never tested them for compatibility with a wide range of consumer software and did not provide drivers for the full complement of devices—such as printers, MP3 players, or even video cards. In fact, we have encountered software that will work on both Windows Me and Windows XP, but not on Windows 2000.

Windows XP comes in two versions—Home Edition and Professional. The fundamental core and interface are the same for both operating systems, but the Professional version has additional security, networking, file sharing, and multi-processor support. For most single-computer households, Windows XP Home Edition will suffice unless you need to connect to a corporate network.

Table 1. Computer Usage Among AAII Members CLICK ON IMAGE TO SEE FULL SIZE.

While the eMac, iMac, iBook, and PowerBook are popular systems and have revolutionized PC design, Apple continues to fight for more than a 3% share of the overall PC marketplace. Among AAII users (Table 1), Mac usership has been in steady decline—falling to just over 7% of AAII members in 2002—whereas over 92% of members use Windows-based systems. Another 0.4% employ other operating systems such as Linux.

In late October of this year, Apple released Mac OS X version 10.3 titled Panther, which includes over 150 new features. The operating system builds upon the Mac OS X by improving the way in which users access and search for files, browse file servers, and view and manipulate file windows. Other enhancements include: FileVault for securing data in the home directory; iDisk, which automatically syncs a user’s offline work to their .Mac Internet server storage (once they go on-line again); and enhanced Windows compatibility that ensures files, printers, and network services can be easily shared with Windows users. Macs ordered after October 8, 2003, ship with Panther, while upgrades cost $129 for a single user’s license and $199 for the Mac OS X Panther Family Pack—a single-residence, five-user license.

Mac systems remain good choices for Web browsing, E-mail, word processing, music and video manipulation, and spreadsheet work. They are also the system of choice for graphic designers. Furthermore, Mac systems tend to be more secure than Windows systems, as more and more new viruses designed to attack Windows-based systems are permeating the computing world. However, investment software for the Mac remains scarce, with little sign that the situation will change. The majority of Mac investment offerings are personal finance programs such as Quicken, but even then the advanced features found in the Windows versions of such programs are not always found in their Mac counterparts. Lately, Apple has had a greater impact in the music industry with its iPod portable player and iTunes software system—both now available to Windows and Mac users.

Intended Uses

As is the case whenever you are looking for a tool to perform a specific job, you need a PC with certain capabilities, especially if you wish to perform computer-assisted analysis.

Technical analysis is probably the most system-intensive work in the realm of investment analysis. This type of analysis involves the manipulation and graphical display of a large quantity of data—typically daily price and volume data over several years. In order to perform such tasks, a computer requires a processor that can quickly perform calculations. Furthermore, a high-quality monitor and possibly a color printer are necessary to examine and print charts and graphs. If you are looking to store a large amount of historical data for many companies, as is typical of most disk-based fundamental screening and analysis programs, a large hard drive would be useful. For day-to-day downloading of data or for extensive Internet-based research, a high-speed connection is desirable. In contrast, most portfolio management programs require more simple processing requirements and, likewise, a less advanced computer.

When shopping for a new PC, it is important to keep an eye to the future: Where will computing be in the future, and what will your computing needs be down the road? As you decide which system you are going to buy, be mindful of both your current and potential future needs.

Out of Many, One

While for most people a computer is a singular item, in actuality it consists of various components, such as the processor, hard drive, disk drives, and video and sound cards. Each component requires a certain amount of understanding to make sure your overall system is right for you and the tasks at hand. The major components are discussed below.

PROCESSORS

In relation to an overall computer system, the processor is one of the smallest pieces. However, without it the computer is rendered useless. The central processing unit (CPU)—or simply, the processor—is the brain of the computer. The faster the processor, the faster the computer is able to execute operations and perform calculations. However, the support system must be up to the task of supplying data and instructions to the processor and then acting upon the processor’s instructions. Chip manufacturers are continually trying to outdo each other for the title of fastest processor. Consequently, faster and more powerful processors enter the marketplace every few months. In fact, Moore’s Law (credited to the co-founder of Intel) states that processor speeds double every 18 months. Remarkably, this statement has held true for over 20 years.

While Intel has been the undisputed king of processors for several years, it has faced strong competition from Advanced Micro Devices (AMD) over the past few years. Intel continues to hold the title of fastest processor with the Pentium 4 Extreme Edition, which was released in mid-September and is expected to be shipping in PCs by the end of November. The Extreme Edition runs at 3.2GHz. Intel released its latest offering for consumer systems just ahead of the much-anticipated release of AMD’s latest chip, the Athlon64, which is expected to rival the Pentium 4 in performance and even surpass it in certain benchmark tests. The fastest processor in the Athlon family—the Athlon 64 FX-51—runs at 2.2GHz. What makes the Athlon 64 unique is that it is a 64-bit chip, whereas the Pentium 4’s are 32-bit chips. Intel produces a 64-bit chip called the Itanium, but it is best suited for very powerful scientific or engineering requirements, or for very powerful servers running flavors of Unix.

Theoretically, 64-bit chips can address more memory directly than their 32-bit counterparts—up to a theoretical limit of four terabytes (1,024 gigabytes) versus 4 gigabytes. These 64-bit processors can also handle large-number math more easily and directly. However, limitations to this technology include compatibility issues with existing 32-bit operating systems and applications.

While the Athlon and Pentium 4 chips represent the high-end processor market for consumer systems, competition is just as fierce in the value market. Here again, AMD and Intel compete with the AMD Duron and the Intel Celeron. These chips do not offer the processing power of their high-end siblings. However, they offer enough power for all but the most power-hungry users at a fraction of the cost.

Significant savings can be realized by purchasing a system slightly below the top end, which is normally priced at a significant premium. For most users, buying a Windows system with a 2.2GHz or faster processor should provide more than adequate performance for the next few years.

In Macintosh systems, chances are you will find either the PowerPC G4 (G4 for short) or the new PowerPC G5 processor from IBM. The G4 is found in the bulk of Apple desktop and laptop systems, including the consumer-oriented iBook notebook and iMac G4 desktop, the low-end eMac, and Power Mac G4 desktop and Power Book G4 laptops. The G5, a 64-bit processor, is currently found in the Power Mac system and ranges in speed from 1.6GHz to 2.0GHz. In head-to-head comparisons, the G4 and G5 rival and often surpass the performance of equivalent-speed Pentium processors. Apple goes so far as to label the G5 the “World’s Fastest Personal Computer.” For most investors, any of the G4 chips should be adequate. As you move up the iMac and eMac ladder, faster processors, additional memory, and larger and better displays are available. The eMac and LCD iMacs are available in packages that provide a good balance of power, memory, storage, and features.

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