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Asked by David Lim

Updated 3w ago

Being new to investing, I am thinking of buying into Tech stocks because the returns look solid and ETFs and bonds returns seem very low. Should I do that?

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Hi David, at any point in time, there will be some stocks that have gone up in price (even for years), and “on hindsight” it will look as though it will keep going up forever (i am assuming by returns you mean the stock price, and not the dividends).

In essence, value investing involves satisfying yourself with two “truths” about a company: (i) The underlying business will continue to do well and (ii) the current price is a “good deal”.

Most people with sufficient education will be able to satisfy themselves on (i). It could be that they work in the company, or they are keen observers of the company’s product and services, or read the annual reports obsessively.

What most people need to improve on; is (ii). The FOMO is real, and even Warren Buffett feels that he’s sitting in too much cash, but in general, to “outperform” the market, you need to avoid following the crowd. If everyone is buying it, it could mean it’s a good deal, or it could mean that the price is going to go much higher than the underlying business justifies.

I have covered some of the salient points in my other answers - do have a read and let me know what you think!

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David Lim
David Lim

28 Mar 2019

Thanks for the answer! Appreciate it.

Hi David!

It is commonly perceived that tech stocks have good returns however, I personally feel this is a misconception. Because with 'solid returns' come 'solid losses' as well. If you were to take a look at the beta of tech stocks i.e. Alibaba, you can see that it's usually more than 1. This means that for every $1 the market increases/decreases in price, Alibaba would move in the same direction but of a larger magnitude. So your gains / losses are magnified. Therefore the term you might be looking for would be volatility instead whereby your day-to-day gains would be significantly higher than ETFs and Bonds (though your day-to-day losses would react the same way as well)

Tencent, the tech giant of China is close to 20% off it's highs. The FANG index (which encompasses Facebook, Apple, Netflix and Google have lost about 15% from its highs back in June last year.

If you're willing to take risks, you might want to consider purchasing Long / Short DLC's (Daily Leverage Certificates) which are available on SGX. DLCs multiply the price fluctuations of stocks by 3x or 5x (depending on which you purchase) and it's rather affordable as well (priced at ~$1)

Nonetheless, its always good to diversify your portfolio. As the saying goes, never put all your money in one basket. If suddenly, one day the tech stock bubble (if there is one) bursts, you'd still be in good hands :)

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David Lim
David Lim

28 Mar 2019

Wow great answer!
Harvey Tan
Harvey Tan,
Level 3. Wonderkid
Answered on 25 May 2019

Consider

a) Vanguard Information Technology ETF VGT ~ TER 10bp

B) PowerShares QQQ Trust, Series 1 QQQ ~ TER 20bp Though QQQ is not a pure tech play, it does offer 'significant' exposure to tech.

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