Tech is booming and everyone knows it. In fact, a friend who has never traded in her life or understands any form of investment picked a tech pooled fund after reading our article on how to invest. I was partly impressed that she was able to recognise an industry wide trend and articulate her reasons why although perhaps not so much the risks.
Looking back at the world over the last decade the world has changed a huge about, there is social media, artificial intelligence, zoom, virtual assistants like Alex or Siri, drones and what not. Books no longer exist, it’s all about reading on a kindle and driverless cars are becoming more and more real. Although legal practicalities may be a long way off with driverless cars.
With a booming technological focus why wouldn’t tech be the future, it most certainly could. However not all tech companies are alike and not all will just survive. TikTok is a great example, owned by Bytedance it has grown tremendously in popularity. However, regulations and the US China trade war have added uncertainty to its future. Other companies such as Amazon have continued to grow even further. Some things to look out for when investing in technology are below;
1. Tech company is great until their technology becomes obsolete and competitors take over
The phenomena known as planned obsolete is not uncommon. Basically companies are planning to make their products obsolete so that they don’t last forver and you can rush out to buy new ones. iPhone is a classic example of this, but I am sure you have heard people say they don’t make them like they used to. This is partially true, when technology was new the intention was to be great meant creating things that lasted forever, however business sense kicked in and companies decided to build them to last a certain amount of time. However with it also comes the risk of people getting frustrated, fed up and going to a competitor.
2. Companies may be unproven, as technology booms innovation remains key
The best investment is the hidden gem, the one that hasn’t been discovered yet but as soon as it gets discovered it will earn you millions. There are so many people looking out for those, however not all survive. Thing is sometimes a company can have a great idea but a bigger house can probably build something even quicker with their own resources or sometimes that great idea just doesn’t work out making a small company risky. A company which stays nimble and continues to adapt with technological innovation is what you need.
3. Dot com bubble is real, the obvious investment choice isn’t always the right choice
The dot-com bubble of the 1990s, otherwise known as the internet bubble is real. As technology saw a rapid rise, stocks rose rapidly as speculation increased. Many people put their entire life savings into internet-related companies only to lose all their money when the bubble burst. Don’t just follow the herd, think about what you are investing in. Just because the dot-com bubble materialised doesn’t mean history will repeat itself, it just means you have to be more aware of what you are doing.
4. Think about types of technology
Technology is a very diverse sector but within it there will be different areas, such as cybersecurity is becoming an increasing threat meaning many business may need software to help their companies remain protected. Video conferencing platforms like Zoom have already made it big, what are the chances that businesses that have spent millions will replace Zoom now, have you missed the boat with investing in this? Maybe you have or maybe you haven’t. Picking the right tech company is a bit more than blindly picking any stock. Think it through properly.
Technology may seem to be a growing trend and will be the future. However making an investment is still a complex area and picking the right stock takes skill. Be aware of the risks and pick one which you truly feel is the right one after you have done your research. If in doubt you could pick a fund manager to do it for you, but there is nothing to say the fund manager will get the decisions right either.
Disclaimer: The above article is not intended to be advice, past performance is not an indication of future performance. Companies may rise or lose.