Dramamine may have been the smartest buy for tech investors this month.
That’s because the tech sector, which seemed pretty bulletproof for most of 2020, is rocking pretty hard. The tech-heavy Nasdaq Composite, for example, has recovered some of its losses in recent days after plummeting nearly 10% in a week.
For investors accustomed to the steady rise of technology, it was a wake-up call in this year’s Covid-19, when much of society is working and shopping from home. For the long-term investor, a past market event, the dotcom bubble, also triggered his PTSD.
“There may be talk circulating that this looks like any other volatile tech environment, like the late 1990s and early 2000s,” said Advice and Growth, Private Wealth Management at Wells Fargo. Head of Strategy, Michael Liash, says: “But this period does not rhyme with that period.”
At the time, when investors were trying to get their heads around the new tech era, many domineering startups had big dreams, bigger debt, and zero returns. This time around, it’s a proven cash machine for many tech companies, with a fortress-like balance sheet. These stronger fundamentals, combined with pandemic-era societal trends in favor of technology, suggest a similarly dramatic price collapse is unlikely.
Investor frustration is certainly understandable. Consider electric car maker Tesla. During the tech industry’s recent downturn, Elon Musk’s company has dipped from about $500 to $300 per share (post-split) and back up to $450, all within days. was performed on That’s a lot of volatility to the stomach, even for savvy market veterans.
Thankfully, the early September plunge didn’t last. Big Tech has risen again in the last few days. In many ways, however, this reprieve presents a golden opportunity for investors. Time to reassess, think about allocation and valuation, and ponder what this setback really means.
There are several strategies you can follow to deal with this volatility without losing your lunch.
Reconfigure the return
When considering an asset’s return, it all depends on which timeframe you’re looking at. For example, technology stock prices may indeed look bad in recent weeks.
But “reconfigure” them and the numbers might tell a different story, says Liersch. Take a step back from the past few weeks and look at the sector with a wide-angle lens. Year-to-date, the Nasdaq 100 tracking fund QQQ has returned more than 30%, even including the fall in September. There is little reason to panic.
Reassess your risk tolerance
A small cliffhanger in tech prices in September may be a useful time to reassess risk. It’s one thing to have a theoretical appetite for risk and one thing to actually experience a sharp decline in asset prices. If you take too much, you panic and go into the sell-all danger zone. This is a real long-term portfolio killer.
So if you find that your risk tolerance isn’t as high as you thought it would be, cut some of the technology you have, take some of the profits, and keep the profits for short-term needs. can do worse than Or retire or redirect to other relatively undervalued asset classes.
“If you’re reaching for Tams because of recent volatility, you’re wrong,” says Brian Fisher, financial adviser at Evensky & Katz in Miami. “It’s time to rethink your investments. You may want to go down in size. Investing when your mind isn’t right will lead to poor decision making.”
If you’re nervous about tech volatility and high valuations, you may need to tweak your course a bit. Now is the right time to bring it back.
In a normal year, Liersch says, investors may confirm allocations each year. But in these strange times, with parts of the market on the brink and others in chaos, it pays to look quarter by quarter, or even month by month.
distinguish between past and present
When people think of technology crashes, they think of the dot-com bubble that exploded in 2000 and destroyed much of the market. However, it may be a mistake to draw the exact same lessons from the current market.
Freddie Garcia, Advisor at Left Brain Wealth Management in Naperville, Illinois, said: The basis is case by case. Unless there is a change in the company’s fundamentals other than recent price volatility, investors should consider maintaining this policy. “
overcome one’s prejudices
Sudden market movements make investors highly vulnerable to “behavioral biases,” says Liersch. That’s the urge to do something, thanks to the latest segment we saw on CNBC.
Behavior gives us a temporary sense of control, but it also leads to frequent trading “disruptions,” Liersch warns. It eats up the expected return.
It also encourages the human tendency to buy high and sell low. This is of course the exact opposite of what you want to do. “People tend to want to sell when stocks fall, and buy when stocks rise significantly,” says Liersch. “It’s not a win-win approach for your financial life.”
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