What you should know before investing in tech stocks
We have all seen the hype of tech stocks booming on the market the last couple of years. However, some people fear they have missed the train, or that it is too risky. Let us explore some of the barriers and misconceptions that people might have of tech stocks and the tech industry.
And do not worry, we are not going to have a boring list of Facebook, Amazon, Apple, and all the other large tech companies. We think you already know about them, so this will be about investing in the industry.
Tech stocks tend to have higher volatility, but fear not
Stock prices for some of these companies go up and down, what if I lose all my money?
The first lesson (of any decent investment strategy) is to make sure that you diversify your portfolio. Investing most of your capital in one stock or market is a recipe for disaster. Sure, tech stocks move up and down quicker than other more stable stocks in real estate or finance.
Mutual funds or ETFs are a good option to expose your portfolio to the tech sector and reducing the risk of owning just a few stocks. It is a way to diversify.
Most tech fads come and go, but these ones stay
There are plenty of long-lived tech companies that keeps growing and churning out dividends. But what about growth companies?
Look for the money. Some tech companies actually deliver a stable profit just like a normal company!
Growth companies still exists, but there is some talk about the large tech companies holding a monopoly on the market. Can a new company grow to the scale of Alphabet, IBM or Microsoft?
Go beyond tech to high tech. It is the eternal cycle. Companies that are considered high-tech now will soon just be tech companies and then mainstream companies. Microsoft could be an example of this, where they pioneered in the 80s and 90s with their high-tech computer systems, and today is a staple in everyday life for most people. That is a long chain, and a long-term investor might be more inclined to take slightly higher risk and go for today’s high-tech stocks.
How to stay updated in the ever growing and changing market
Information is key. If you do not want to feel overwhelmed, then keep reading and keep learning. Knowledge is key when investing. But there are plenty of sources out there, telling you this and that. So, which, or what, should you focus on?
Just like Warren Buffett, get in the habit of reading financial reports. A stock contains the value of a company’s expected future, as well as their (or based on) their current financial performance. The best way to understand how well a company is doing is by looking at their financial reports. Are they making money? Are they growing? These are key aspects for the company’s future success and for long-term investing are more important than hype.
To look at Warren Buffett for inspiration again, invest in industries you understand. What is happening right now in the tech industry? Where is the market heading? Great sources for these questions can be found everywhere. The internet is full of pop-science references, news sites report on the latest trends from research institutions. DNA programming, Deep learning, Space. But do not make the mistake to invest based on intuition for what will be big in the future. Intuition is a good starting point to expand your knowledge. YouTube have plenty of videos of easily understandable science videos, of the future of a particular technological concept.