In the 1987 film Wall Street, Hal Holbrook’s moralizing character Lou Mannheim takes Charlie Sheen’s boisterous young Bud Fox aside.
Stick to the basics,” he tells Gordon Gekko’s student.
“That’s how IBM and Hilton were built. Good things sometimes take time.”
There will be more than a few investors leaning on that kind of wisdom after a week of owning tech stocks.
They crashed. Apple, Google, Microsoft, Tesla and Amazon all lost between 120 and 200 billion euros in market value.
Others, like Zoom (down two-thirds) and Netflix (down three-quarters), are even worse.
What the hell is going on? Are we all suddenly rethinking what we think these tech companies are worth? Or is something else causing those ratings to slide?
In Ireland there are a growing number of people who don’t even trade stocks who will be affected – pensioners and multinational workers.
If some of your pay is tied to stock options in one of the tech giants, you may need to put that attic makeover on hold.
You should also consider how much of your pension goes into “high growth” stocks.
But those with easier investments in a broad tech portfolio have another, more fundamental question: Is Apple – down 15 percent in the last month alone – a bad choice now?
For day traders, the answer might be yes. But with Hal Holbrook’s logic, the analysis must be slightly different.
What appears to be happening is a re-evaluation of these high-growth stocks based on slightly more attractive alternatives for conservative investors.
In plain language: Rising interest rates make bonds more attractive.
That means a little less institutional money in the kind of stocks that big investors were willing to risk because of the underperforming yields of things like bonds.
So it’s not like the market thinks the iPhone is overrated in any way. The thing is, the safe-as-houses option just got a little prettier, resulting in slightly less demand for Apple stock.
Of course, this does not apply to all technology-related assets. Crypto – and NFTs in particular – is crashing at a rate that is wiping out people.
Luna, a so-called “stablecoin”, traded at $85 10 days ago. In the last phases of the last week it was at 3 cents.
Bitcoin, the crypto asset most held by Irish casual investors via apps like Revolut, is down 19 percent on the week, 24 percent on the month and a whopping 51 percent over the past six months.
Ethereum, the other major crypto-asset held by Irish dilettantes, is even worse — down 27 percent on the week and 53 percent over the past six months.
Both are down over 40 percent for the year, marking the first time crypto has fallen over a medium-term investment horizon in a while.
In typical crypto-world fashion, the responses to this have swung wildly, from “this is the chance of a lifetime” to “I’ve been scammed and will never touch that junk again”.
I don’t have a clear opinion on whether crypto, in any form, is a worthy investment in the asset class.
But just as it is important to point out the tremendous lack of regulatory oversight, transparency, safety nets and basic controls, it is also fair to note that there is still a lot of very sizable medium- to long-term institutional investment in crypto and crypto-related systems.
That is not a guarantee of any kind of viability. But it’s a signal that the underlying technology is being taken seriously by companies other than hype traders. It might even indicate that there are new foundations for crypto and blockchain that have found institutional acceptance.
But will the current slump in tech and crypto stocks continue in the short term?
Or has the market now priced in the relative attractiveness of low-growth alternatives – the kind of tech companies Hal Holbrook was referring to? Wall Streetthe ones with “basics”?
In this case, some of the stocks may appear comparatively cheap to long-term investors. Being three-quarters off its peak is harsh judgment on Netflix’s fundamentals unless you think the streaming market is now saturated or that strengthened competitors — notably Disney, but also Apple and Amazon — are now poised to eat their lunch.
Likewise, there’s no sign of Google (down 12 percent over the past month and 25 percent over the past six months) losing attractiveness or dominance in its strongest markets. Or apple. Or Microsoft, or Amazon, or even Tesla.
So while it’s been a brutal time for those looking to make a living from owning stakes in these companies, it doesn’t look like any of them really face any serious threats.
That doesn’t mean you should buy tech stocks. Or, if you hold them now, that you shouldn’t sell them to put an end to your risk of being exposed to the stock market bloodbath.
But it’s a fair bet that most of today’s tech companies will still be around with new products a few years from now.
https://www.independent.ie/business/technology/dont-be-so-quick-to-write-off-tech-stocks-theyve-got-fundamentals-41646437.html Don’t be so quick to write off tech stocks: they have fundamentals