Tech stocks have been THE investment over the last decade with triple-digit returns but there are three reasons I’ve stopped investing in technology stocks. I’ll reveal why and the stocks to buy plus why every investor needs a stock rotation strategy.
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Shares of tech companies have jumped 78% in the last two years and have doubled the market return over the last decade. You could practically throw a dart at the Nasdaq and make money. Here on the channel, we invested in SNAP back in September before a 200% return and in Logitech for a 185% return.
But I’ve stopped investing in tech stocks for three reasons, three forces that could mean these growth stocks underperform the rest of the market for at least a year. In this video, I’ll show you why tech stocks might fall and how to use a stock rotation strategy in your investing. I’ll also reveal the best stocks to buy now and what I’m buying.
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The first reason tech stocks will underperform is simply valuation. Most stocks are expensive right now on a PE basis but tech stocks are the second most expensive group in the market, second only to consumer discretionary. Investors are paying nearly 60% more for tech stocks than they have in the past.
Second is that all the big picture economic forces seem to be lining up against technology companies. Government regulation could slow growth for the big tech and internet stocks. Higher interest rates will mean valuation for growth stocks get hit and the slower COVID vaccination rates globally will mean those companies relying on international sales could lag those with a more domestic focus.
As an investor, you need to be watching for these kinds of shifts in the stock market. Tech stocks have done really well over the recent past but that won’t work going forward. You need to be changing your strategy to be ahead of the market.
Now understand, I’m not selling all my tech stocks. I still hold positions in some of the best tech stocks like CRM, PayPal and Fastly. I’m not selling these but I’m also not buying more stocks of Information Technology or Internet companies.
What I am buying are stocks in REITs and Financials, two sectors that could do really well in the current environment. Higher interest rates and moderate inflation will help both and both sectors are relatively cheap compared to expensive tech stocks.
0:00 Should You Invest in Tech Stocks? I’m Not.
0:50The Best Tech Stocks I’ve Bought Over the Last Year
1:20 Tech Stock Returns
2:10 Three Reasons Technology Stocks Could Lag the Market
6:05 How to Watch for a Change in the Stock Market
7:50 Tech Stocks to Buy and Why I’m Not Selling Everything
8:20 Stocks to Buy Now
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.
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