Technology stocks

TECHNOLOGY STOCKS AND INVESTOR BEHAVIOR


Today, an investor thinks a myriad times before investing in a business that he understands, however doesn't stop a minute to invest in a technology oriented companies. The buzz of technology and the jargons that linger around the companies traps people easily. Past has shown that investors can show good profits by investing in businesses that are very simple to understand. As Peter Lynch says, one should choose business that even a stupid can understand, because sooner or later some stupid is going to run it.


PROBLEMS WITH TECHNOLOGY STOCKS


The biggest problem with technology is that they get outdated too fast leaving no time for a non-expert to understand, grasp and reach for the change. Technology is evolving faster that ever that you can't imagine what kind of additional features your cell phone you will have 5 years from now, or how thin your laptop would be in a decade. The existence of such devices itself is a question, because one cant rule out the possibility of some advanced device emerging in the market thereby killing the existing ones, just like pager disappeared after the arrival of cell phones. Magnetic tape days are gone, taking with it the companies that manufactured them. The problem with technology is the appearance of one and disappearance of the other is so fast that unless you observe the technology shift at the earliest, your investment might disappear completely.  However, no one can guarantee that the new technology will emerge big. No one yet knows about open-ids. Blue ray disks are not yet popular. These are some examples which support my argument. To put in simple terms, the ice cream parlor near my house is not threatened by some parlor in China, or Brazil. But thinking of a technology company, it is not the case. If someone at the other end of the globe invents the next technology, all the companies that worked on the current technologies are under threat. Being an uninformed investor is very dangerous as your hard earned money can disappear anytime without leaving you much time to save it.



WHAT SHOULD INVESTORS DO?


It is always safe for the investors to keep themselves away from technology stocks if they aren't experts in that area. If he feels that a technology is really promising, here are the things that he can consider -
1. Buy stocks of those companies which manufactures raw materials for the techy companies.
2. List out all the areas which can benefit from the technology (technology consuming companies) and invest in them, rather than investing in the technology producing company.
3. If you are not convinced with the above set of stocks, then look for the companies which has some of its subsidiaries working in that technology, whose value the market hasn't yet recognized. Try treating it as a separate company and give the current market valuations to the subsidiary alone. If it looks very cheap, then buy it.