Tech stocks’ big secret: their value lies in their risk

*This content is brought to you by Brenthurst Wealth

By Johan Burger, CFP® *

The start to 2022 has not been kind to the world’s high-flying tech stocks, with the US and Chinese tech giants taking a hit. Concerns in the US Centre are regarding economic growth, rising inflation and audience retention, while their Chinese counterparts are fighting government clampdowns.

Johan Burger

Either way you look at it; the Nasdaq is down more than 11% this year, in addition to some of the big losers, including pandemic darlings Robinhood and Peloton. Big names like Meta, Amazon and Netflix have also seen their stock prices knocked back quite severely.

This scenario has not pleased investors – some of whom are starting to question their exposure to what appears to be quite risky stocks.

The risk is exactly what creates the rewards in listed equities. An important fact to consider regarding these types of stocks is that they are precisely the ones that will be thriving in 10, 20 and 30 years from now.

Companies like Microsoft are already quite established, and they have proven to be adaptable and to remain relevant, even though there is still the risk that they could be overtaken by new technologies. Although companies dabbling in artificial intelligence, quantum computing and other emerging technologies carry the greatest potential reward, they also carry the greatest risk.

Look no further than tech behemoth Amazon to understand the phenomenal growth that is possible if you back the right horse early enough. The company listed in 1997 at around $1,50 and today has a share price in the region of $3 000. Unsurprisingly, it has not been a smooth ride to get there, and the company’s share price has had its fair share of ups and downs over the past years. But it remains a perennial winner, and that is exactly why investors love the stock.

The best way to profit from other tech stocks – which can grow as fast – is to try to get in early and to hold on, no matter what.

Here are three crucial points to remember, should you have doubts regarding the wisdom of holding onto these stocks:

Tech stocks = growth stocks

The argument in favour of tech stocks – from information technology to biotechnology – remains unchanged, no matter the short-term influences of the past year.

Amazon’s growth is the perfect example of how developing technologies and platforms of tomorrow will position these businesses for the future. Tech companies have remained relevant through the 2000s and 2010s and will continue to do so going forward.

The slight blip at the beginning of 2022, will be forgotten in decades to come.

Volatility is an opportunity, not a threat

Stock prices climb and fall all the time, sometimes more than at other times. That is a reality that you have to come to terms with as an investor.

The other reality worth bearing in mind is that you only record a loss on your investments if you sell when they are worth less than when you bought them. If you do not sell when shares dip, then you have not lost anything. The value of those shares in your portfolio might be lower, but only at that point in time.

More importantly, with a discounted price on a stock you believe will rebound and grow, you might consider it the ideal opportunity to rather buy thereof. When the market and share rebound, you will benefit from its recovery.

A rough ride

This advice (to buy the dip) may annoy investors who recently bought when tech stocks were at all-time highs.

As I have mentioned, your portfolio might be less valuable than when you first invested, but you only lose capital if you sell when the price is lower than what you paid.

The best advice I can provide you with is to remind yourself that investing is a long-term game and that the market’s long-term trend is always upwards. The beginning of 2022 may seem like it is all crashing down, but when you look back in 10 or 20 years, these few months will hardly register.

The long and the short of this tale is that doing nothing, is the best thing you can do to make sure your retirement savings remain on track. If in doubt, reach out to a financial advisor to help get a better perspective on the risks and rewards you can expect from exposure to tech stocks in portfolios.

Brenthurst Wealth

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