Technology: Let the Good Times Roll
Courtesy of Wade Slome, Investing Caffeine
Investing in technology, including the likes of the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) has been a lucrative strategy over the last two decades, especially since the end of the bursting dot-com technology bubble in 2002. From the bottom in 2002 through the end of August 2020, the technology-heavy NASDAQ index has returned a staggering 959%.
Although not as dramatic, this year’s rebound in stock prices since the March peak of the COVID-19 pandemic crisis has been fierce. You may not have heard of stay-at-home and COVID-19 related stocks like Teledoc, DocuSign, and Zoom before the crisis but you certainly have now. Technology names and other “COVID stocks” have helped fuel the massive 31% rally in the NASDAQ from January until the end of last month. Many investors, including Sidoxia, are benefactors of this surge. However, good times rarely last forever.
Shifting Trends
Although technology investment generally comprises a larger percentage of “growth” style indexes, there are cycles or periods of time when “value” investment indexes have their time in the sun. For example, the NASDAQ index fell from a high of roughly 5,132 in March of 2000 to 1,112 in October of 2002 (-78%). The Vanguard Value index only fell about -33 over the same time period. Over the comparable time frame, the S&P 500 index lost -44% (see below).
Not a New Subject
Long time readers may think I sound like a broken record – I have been writing about the fruits of technology for well over 10 years. Those interested can revisit some those thoughts here:
–Investors Slowly Waking to Technology Tailwinds (2017)
–Rise of the Robots (2016)
–NASDAQ Redux (2015)
–NASDAQ and the R&D-Tech Revolution (2014)
–NASDAQ: The Ugly Stepchild Index (2012)
–Innovative Bird Keeps All the Worms (2011)
–Living Large – Technology Revolution Raises Tide (2010)
–Technology Does Not Sleep in a Recession (2009)
A Word of Caution
Despite my favor toward long term technology trends, every ride can’t last forever. It is important for investors to stop and take stock of how far and how fast any particular investment grows. Experienced, long term investors like Sidoxia have been able to find good opportunities regardless of a trend being in or out of favor.
When referencing the technology bubble 20 years ago, it is impossible to ignore then Fed Chairman Alan Greenspan’s “Irrational Exuberance” speech warning about high stock market valuations. That infamous speech was on December 5, 1996 – three and a half years before the peak. Had you sold out then you would have missed the NASDAQ’s massive 295% rally. In other words, it is impossible to time the market or predict how long and how far trends will continue, even when pockets of euphoria exist.
At Sidoxia, we constantly evaluate, monitor, and rebalance when needed – taking profits from winners while redeploying to attractive, under performing opportunities. Technology will not simply stop evolving, even if the mega trend rotates out of favor with investors. At present time it may be a volatile arena going forward and investors should be active in managing their risk.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (September 1, 2020).
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in AAPL, AMZN, GOOGL, FB, MSFT, TDOC, DOCU, ZM and certain exchange traded funds (ETFS), but at the time of publishing had no direct position in VIVAX or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
