Is it time to take profit on tech stocks? Well, yes and no. While the phenomenal gains we’ve seen in technology stocks over the past 12 months are probably not sustainable in the short term, it doesn’t necessarily mean they are mispriced or overvalued. Having said that, part of the recent run has simply been due to the weight of money into these stocks as investors globally moved money away from traditional businesses and those that were negatively impacted by Covid. So, what we have seen and will probably see more of in the next few months, as the economic recovery gathers pace, is a lot of that money rotating out of tech companies back to where it came from.
In reality, we have seen some of that occurring already from time to time over the past few months. You’ll notice those days when the markets haven’t necessarily moved much but tech stocks are down sharply, and the financials and industrials are up about the same. That’s really just the weight of money from investors moving money between sectors. Tech companies have performed really well, so we have been taking some profits from time to time, which we think is prudent, and reinvesting into those more traditional businesses that will benefit from improving economic conditions in the 12 months ahead.
However, taking a 5 to 10-year view, there is no place I would rather be invested than tech. To be clear I am not talking about high-risk venture capital; that’s a separate discussion. I am talking about the market leaders such as Apple, Amazon and Microsoft as well as, more importantly, the emerging leaders such as Atlassian, Spotify and Zoom. These types of businesses, and others like them, are the future. They are global businesses that solve problems in new ways. They create new markets and can scale quickly. They disrupt and overtake the existing companies that have become complacent and profit focused.
So, while I am very mindful of the rotation out of tech and agree that taking profits from time to time is prudent, we are very bullish on tech in the long term. As the economy improves and the traditional financials, industrials and Covid affected stocks recover, we will likely see tech stocks pull back. I am not concerned with that as these are long term investments. These tech companies will continue to be a core part of our investment portfolio’s going forward and when our preferred stocks are down, we will continue to add to our core holdings as opportunities present themselves.
This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you.