When newspapers are running headlines about how some stock is going to double in value, it's time to get as far away as possible.
Besides, if you're in technology, you shouldn't be investing in tech companies. Since most of us are technologists, if we're ever out of a job for the long term, it'll probably because of a downturn in the technology industry. If our savings are in tech companies, our savings will be down too.
I'm talking about boring investing though - slow, boring returns from boring companies. So when Forbes runs a headlines saying that AAPL will hit $1000, the stock ceases to be boring, and so in my mind, it's time to step aside for a bit.
This is so true and I am glad that I am not the only one who thinks that way. In addition to that one could argue that investing in stocks (whatever the industry may be you are investing in) is a bad thing if you are not an insider. My brother who is a hacker and economist at the same time showed me studies that determined/proofed that the stock market is very irrational (I mean we all knew that but those studies showed this with scientific methods). I will ask him about those studies again - may be interesting to others as well.
The day to day of the stock market is irrational, but long term investing isn't. If you're putting money in the stock market and not looking out 5+ years, you are simply gambling.
This heavily depends on how the companies you are investing in perform in the mid-term. It is true that the stock market out performs other kind of investments but this is only true if you are not investing in let's say 2-3 companies but rather in an index or something similar. Investing in an index is much much less exciting than investing in 2-3 companies.
> It is true that the stock market out performs other kind of investments but this is only true if you are not investing in let's say 2-3 companies but rather in an index or something similar.
It depends on what those 2-3 companies are. An index is certainly safer, but if you are good at determining growth prospects then you should absolutely be picking your own stocks.
I think the strategy of buying a diversified portfolio of large, boring companies doing core things that everyone needs is a pretty safe bet.
If you're investing, I think that you should have a gambling account too, because it's fun and keeps you interested. It should be far less than 10% of your portfolio, and you should recognize that it's play money instead of real savings.
if you're in technology, you shouldn't be investing in tech companies
Warren Buffett avoided investing in technology companies during the dot-com tech bubble because he didn't understand them. So according to the most legendary investor of all time, understanding what you invest in is crucial.
To exclude investing in tech companies because your income comes from tech companies might be a good strategy to diversify and mitigate against short-term market fluctuations. But it's an incredibly stupid strategy if you're shooting for growth and willing to accept some level of risk. Because your tech expertise gives you the best chance of actually investing intelligently in tech.
Leaving aside the eggs-in-a-single-basket aspect, I think being too close could be a liability. You may read a lot of bearish press about Apple that emphasizes market share over profit share completely missing the point of Apple's culture and the fact that foregoing the standard protectionism is what allows them to pursue the next great product so much better than anyone else. You might be totally right in this thinking and yet still be screwed by the market because it's full of speculators subscribing the conventional wisdom. And it's tech, so totally plausible for them to hold the stock down until consumer tastes move on and it becomes a self-fulfilling prophecy.
I see so much dubious analysis of Apple (eg. suggesting Apple could go the Dell route) that I'm getting tempted to go long, but it's a tremendous risk because it's so damn frothy.
I think you're missing the point. Yes, if you're willing to "accept risk" then obviously tech can be part of any portfolio.
But the grandparent post was making a point about risk analysis that you seem to have missed. Because we are (presumably) already employed in the tech sector, we are already exposed to risk in that sector, even with nothing in our portfolios. A tech downturn is going to impact us disproportionately already, so adding exposure in our investment portfolios is adding extra risk in a way that it is not for a more typical investor.
That doesn't mean "don't invest in technology", but it does mean that you need to be more careful about how you reason about it and not just brush the decision off as your willingness to "accept some level of risk."
FWIW, I get (and got) the point. Restating the gp's arguments doesn't somehow make them more true. But let me clarify my own point.
Suppose that industry X is the best industry to be in from a long term income and investment point of view, but that it's volatile in the short term. If the volatility is dangerous to you and you can't accept that level of risk, then diversification of your income and investments is wise.
However, if you have sufficient risk tolerance, e.g., enough money in the bank and time on your hands to survive through the fluctuations, then it is still better to be all-in on industry X for your overall growth. Because it performs better over the long term.
I'm kind of assuming here, for the sake of argument, that you maintain the same income+investment industry mix over time rather than changing it up periodically and trying to beat fluctuations. But, I hope this makes my point more clear.
It's clear, but it's still wrong: your risk tolerance analysis appears to include "money in the bank ... to survive through the fluctuations" of the market, but not to survive a simultaneous loss of your job. Which, because it is in the same sector as your investment portfolio, is very likely to be correlated with those downward fluctuations.
Stated again, and for the third time: for technical professionals, investment of personal assets in the tech industry carries higher risk than it does for fund managers and other general investors. If you aren't investing with that in mind, you're fundamentally doing it wrong. This isn't a question of "risk tolerance", it's a question of correct mathematics.
> Besides, if you're in technology, you shouldn't be investing in tech companies.
I find that to be an odd maxim. Certainly one should limit exposure to acceptable risk tolerance… say 10-15% of portfolio; however, being in the industry we have significant insight into trends, viability, capital allocation, reputation, market forces, etc. Why wouldn't we leverage that knowledge for investment? When most CIOs were mocking AAPL, the stock was in the low $100s, it was a great time to invest for anyone who spotted the early trend.
The "technology industry" is too just big and diverse to talk about as a single atomic unit. Hell, even software is too big to treat as a single unit. Don't invest in your specific field (or at least, don't put all of your investments there), but anyone who understands technology is in a better than average position to make smart tech investments.
And in a rational world it would be. It's P/E ratio is crazy low compared to Google and Amazon just in raw terms. But the market is an irrational place, it only looks sane in aggregate and over longer time periods.
The rational part of me says it will be over 1k within a year, regardless of how irrational I know that thought to be :-)
Apple's P/E isn't comparable to Amazon's. The two companies execute radically different strategies. Amazon relentlessly spends profits to capture market share; Apple is famous for being the profit share leader in the markets it sells in.
P/E is just one signal of many that affects the stock price. You cannot look at it in isolation.
For example, the smartphone and tablet market is subject to changing trends and quick turmoil. One botched launch cycle from Apple and/or one great launch from one or more of Samsung, Google, Nokia is enough to change things in just one year. That implies risk, and the market does not like risk.
Contrast that with well entrenched near monopolies with well erected moats like Google in the web search market, Amazon in the online retail market and Microsoft in desktop software with Windows/Office.
If Apple wanted to boost stock price they would have a 20:1 stock split. Price per share would then be in the $20's and would quickly shoot up because of how "cheap" the stock is.
The bloggers, financial news sites and even the mainstream media need a story to go on, so last year it was Apple. Also analysts need to make a name for themselves so AAPl at $1001 is a sure thing to make it in the news and maybe stay there.
But the media tires so they start the cycle of destroying what they built up and build up a new thing (now it's Google.) When Apple was valued at $600 Billion it was clear that the law of big numbers was going to kick in really soon
They say crash, I'd say correction. AAPL has shot up by over 6,000% in the past ten years. And this recent move hasn't even dropped it below the price it commanded prior to Steve Jobs' passing.
Why all the "terrible iPhone 5 sales" being touted in the newspapers when they were sold out of it for months, and the latest mobile ad data suggesting it's gobbling up marketshare like there's no tomorrow?
The headline is misleading. A 52 week low is more accurate. A new low implies that the stock is in the sub $2.00 range. Of course this is nitpicking but "Crashed To A New Low" is rather sensational.
In March 2012, the San Jose Mercury had headlines like "No end in sight to Apple growth? Even after paying for dividend and stock buyback, tech giant’s shares are likely to keep rising" and "Regular folks rewarded for patience with Apple stock riches".
Articles like those should be scary to anyone around during the tech bubble. Back in March 2000, Cisco was the world's most valuable company and everyone was buying the stock because of all the cheerleading articles. Now Cisco is #52 most valuable company and the stock has been flat for a decade. Looking at AAPL and CSCO stock charts shifted by about 10 years is very interesting.
This reads like I think Apple will do the same thing as Cisco, so let me be clear that I have no idea what Apple stock will do. I just want to provide some history about the Cisco stock trajectory for those readers who were in elementary school at the time :-)
(By the time I'd found the articles I was looking for, this had dropped off HN's front page, so I may be wasting my time writing this.)
Henry Blodget is a well known known for being an Apple Troll.
It seems this guy have a personal vendetta against Apple.
The "issues" with Apple he listed and the explanations are full of the same unsubstantiated rumors that have been regurtitated by the incestuous tech journalists and analysts.
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[ 4.5 ms ] story [ 77.1 ms ] threadBesides, if you're in technology, you shouldn't be investing in tech companies. Since most of us are technologists, if we're ever out of a job for the long term, it'll probably because of a downturn in the technology industry. If our savings are in tech companies, our savings will be down too.
I'm talking about boring investing though - slow, boring returns from boring companies. So when Forbes runs a headlines saying that AAPL will hit $1000, the stock ceases to be boring, and so in my mind, it's time to step aside for a bit.
It depends on what those 2-3 companies are. An index is certainly safer, but if you are good at determining growth prospects then you should absolutely be picking your own stocks.
If you're investing, I think that you should have a gambling account too, because it's fun and keeps you interested. It should be far less than 10% of your portfolio, and you should recognize that it's play money instead of real savings.
You should buy the stock for a discount and immediately sell it. This is because if the stock price falls, you have a huge chance of being a layoff.
Warren Buffett avoided investing in technology companies during the dot-com tech bubble because he didn't understand them. So according to the most legendary investor of all time, understanding what you invest in is crucial.
To exclude investing in tech companies because your income comes from tech companies might be a good strategy to diversify and mitigate against short-term market fluctuations. But it's an incredibly stupid strategy if you're shooting for growth and willing to accept some level of risk. Because your tech expertise gives you the best chance of actually investing intelligently in tech.
I see so much dubious analysis of Apple (eg. suggesting Apple could go the Dell route) that I'm getting tempted to go long, but it's a tremendous risk because it's so damn frothy.
But the grandparent post was making a point about risk analysis that you seem to have missed. Because we are (presumably) already employed in the tech sector, we are already exposed to risk in that sector, even with nothing in our portfolios. A tech downturn is going to impact us disproportionately already, so adding exposure in our investment portfolios is adding extra risk in a way that it is not for a more typical investor.
That doesn't mean "don't invest in technology", but it does mean that you need to be more careful about how you reason about it and not just brush the decision off as your willingness to "accept some level of risk."
Suppose that industry X is the best industry to be in from a long term income and investment point of view, but that it's volatile in the short term. If the volatility is dangerous to you and you can't accept that level of risk, then diversification of your income and investments is wise.
However, if you have sufficient risk tolerance, e.g., enough money in the bank and time on your hands to survive through the fluctuations, then it is still better to be all-in on industry X for your overall growth. Because it performs better over the long term.
I'm kind of assuming here, for the sake of argument, that you maintain the same income+investment industry mix over time rather than changing it up periodically and trying to beat fluctuations. But, I hope this makes my point more clear.
Stated again, and for the third time: for technical professionals, investment of personal assets in the tech industry carries higher risk than it does for fund managers and other general investors. If you aren't investing with that in mind, you're fundamentally doing it wrong. This isn't a question of "risk tolerance", it's a question of correct mathematics.
I find that to be an odd maxim. Certainly one should limit exposure to acceptable risk tolerance… say 10-15% of portfolio; however, being in the industry we have significant insight into trends, viability, capital allocation, reputation, market forces, etc. Why wouldn't we leverage that knowledge for investment? When most CIOs were mocking AAPL, the stock was in the low $100s, it was a great time to invest for anyone who spotted the early trend.
http://appleinsider.com/articles/12/10/16/analysis-apple-sto...
http://www.forbes.com/sites/gurufocus/2012/10/05/apple-stock...
The rational part of me says it will be over 1k within a year, regardless of how irrational I know that thought to be :-)
For example, the smartphone and tablet market is subject to changing trends and quick turmoil. One botched launch cycle from Apple and/or one great launch from one or more of Samsung, Google, Nokia is enough to change things in just one year. That implies risk, and the market does not like risk.
Contrast that with well entrenched near monopolies with well erected moats like Google in the web search market, Amazon in the online retail market and Microsoft in desktop software with Windows/Office.
But the media tires so they start the cycle of destroying what they built up and build up a new thing (now it's Google.) When Apple was valued at $600 Billion it was clear that the law of big numbers was going to kick in really soon
Articles like those should be scary to anyone around during the tech bubble. Back in March 2000, Cisco was the world's most valuable company and everyone was buying the stock because of all the cheerleading articles. Now Cisco is #52 most valuable company and the stock has been flat for a decade. Looking at AAPL and CSCO stock charts shifted by about 10 years is very interesting.
This reads like I think Apple will do the same thing as Cisco, so let me be clear that I have no idea what Apple stock will do. I just want to provide some history about the Cisco stock trajectory for those readers who were in elementary school at the time :-)
(By the time I'd found the articles I was looking for, this had dropped off HN's front page, so I may be wasting my time writing this.)