From Part 1, I asked myself seven questions (see below) with regards to the above-mentioned topic. Thus far, I answered 4 questions. In this post, I will provide viewpoints for the rest of the questions (in blue below).
1. Is it advisable to invest at ATH prices?
2. Will there be a second-wave crash or will Tech sector continue to find high?
3. What are the possible scenarios if you wait at the sideline waiting for crash?
4. What are the possible scenarios if you invest now, and it crashes later?
5. Will there be a repeat of Dot.com crisis?
6. What Types of Tech Stocks?
7. What is your individual situation?
QN 5: WILL THERE BE REPEAT OF DOT.COM CRISIS?
Dotcom Bubble started in year 2000 with stocks entering bear through to 2001. It is also known as the internet bubble seeing the rapid rise of US tech stock equity valuations sky rocketed fuelled by investments in internet-based companies during the bull market in the late 1990s. During the Dotcom bubble, Nasdaq index risen from under 1,000 to more than 5,000 between the years 1995 and 2000.
The euphoria came to an end with Nasdaq tumbling from a peak of 5,048 on March 10, 2000, to a low of 1,139 on Oct 4, 2002, a 76.8% fall. Many internet companies had gone bust. Even blue-chip tech stocks such as Cisco, Intel and Oracle lost more than 80% of their share value at their peak. It would take 15 years for the Nasdaq to regain its dotcom peak, taking place in April 23, 2015. Fifteen years is a long time, although Nasdaq climbed above 10,000 today, 20 years later.
Will there be a dot.com crisis today? Let’s do a simple comparison of Nasdaq rise versus Dow Jones rise in the two periods of Dot.com and the last five years.
source: yahoo finance
Dot.com crash (1995 to Sep 2002)
· Nasdaq rise from 1,000 to 5,000 (up 5x). Crash to 1,139 (down ~5x).
· DJIA rise from 4,700 to 11,723 (up 2.5x). Crash to 7,701. (down 1.5x)
Now (2015 to today)
· Nasdaq rise 5000 to 10000 (up 2x).
· DJIA rise from 18000 to 26500 (up 1.5x).
The rise of equity prices in Dot.com crisis of Nasdaq is 5x, compared to Dow of 2.5x. In the past 5 years, Nasdaq rose 2x, compared to Dow 1.5x. This means that Nasdaq’s rise in the past five years is only 33% more than the rise of Dow, while during Dot.com crisis, Nasdaq’s rise is 200% more than the rise of Dow. This suggest to me that the current Tech rally is not likely to solely due to the irrational euphoria.
Without doubt, there is a general hype of the stock market in the last 5-10 years. However, I feel that it is definitely NOT due to Tech Bubble. Instead, global markets have been rallying since the GFC due to the easy monetary policy.
As such, I do not think there will be a repeat of the Dot.com crisis, handing more hefty punishment to the Tech stocks, than the general market. On the contrary, I felt that if there is another major crash again, the entire global markets will suffer similar fate, with certain Tech equities, in fact, able to survive better, due to the healthy financial situation and future growth prospects.
QN 6: WHAT TYPE OF TECH STOCKS?
There are many types of Tech stocks, but I will like to generalize it into two country of origins, i.e. US and China. Note that the China stocks can be listed in the US or HK or have dual listings.
Separately, below is a good news for Singapore as SGX has recently announced a signed MOU with Nasdaq for future dual listing here.
Great News for SGX – SGX RegCo signed MOU with NASDAQ to Enhance Dual Listing
US – QQQ ETF
For US type of Tech stocks, you can refer to Invesco QQQ ETF holdings which are dominated by FAANG stocks. As of end of last week, Apple led the holdings with ~12%, Amazon and Microsoft with ~11%, Facebook with ~4%, both Google or Alphabet Class A + C ~ 8% (total), Tesla with 2.6%, Intel 2.4%, Nividia 2.3%, Netflix and Adobe with ~2% each, etc. Refer to here to discover more. PE as of end June for QQQ ETF is approx. 31.
If you look at US tech giants, the most overblown is Tesla stock with a Market Cap of USD280B, PE of >737 (TTM), Price to Sales is 10.7 and profit margin is 1.43%. While the financial figures of Tesla is not promising now, many investors consider the growth potential, huge! Imagine one day the whole world will have more electric cars than fuel-powered cars.
You decide if it is worth it to invest now?
My “disclaimer” recommendations are Apple and Google. Both companies have PE ~30 and more than USD100B in cash. Microsoft has a PE of 35, and with a cash of more than USD130B. Finally, Amazon, having a PE of 140 or more, but with incredible growth potential in my opinion. I will cover Amazon in a separate post. All have exceptional potentials in the cloud space, and as well as the country India with more than a billion of population.
Hang Seng Tech Index
Hong Kong Stock Exchange (HKSE) has become increasingly attractive to Chinese companies that fear for their business prospects in the US in view of the tense China-US relations. Aside from Alibaba, Tencent, JD.com, NetEase etc, having dual listings in US and HK, Baidu also signal their intention to do so.
Then there is the recently announced Ant Financials’ dual listing in Shanghai and HK with a target valuation of more than USD200B. Ant Group is a subsidiary of Alibaba, and the company behind Chinese mobile payments business Alipay. There are also other promising Tech giant such as Meituan Dianping, Xiaomi, Lenovo, BYD etc.
Dr Wealth’s founder Alvin has also recently written a very comprehensive post on Hang Seng Tech Index too. Refer here.
To be honest, I am pretty bullish about the future of China Tech Stocks. Firstly, if you look at the Chinese Tech share prices be it in US or HK SE, they actually not really in the Bubble Zone. Baidu is at its 5 year low pricing with a PE (TTM) of 9.3. Baidu has cash of more than USD140B and a current ratio of close to 3. Alibaba and JD have listings in HKSE not too long ago. Their prices are still very close to IPO prices. For their US listings, both Alibaba and JD.com have forward PE of less than 30, and their US share prices’ increased, over the last 5 years are in a much tamed manner compared to other US Tech’s counters, despite growing yoy revenue.
China has a population of close to 1.4B compared to US’s 328M. However, China ‘s GDP per capita is a mere USD10K, as compared to American’s USD65K. Refer to data here from World Bank. Furthermore, China still have great urbanization potential, compared to the US. In my humble opinion, the growth prospects of many Chinese Tech giants equities is very lucrative over the longer term.
QN 7: WHAT IS YOUR INDIVIDUAL SITUATION?
Investment is not just focusing stocks. We have to consider our own individual situation. For instance, if there is a stock crash, will my personal life, health, emotions or income be affected to the stage that I will be feeling so depress? Do I have sufficient cash or other safety nets to tide through the crisis?
If there is a repeat of March 2020 crash, consider the below situation:
1) I have sufficient “bullets” and “guts” to average down, and I am happy to be able to buy great stocks at a cheaper price.
2) I prefer to stay at the sideline with the paper losses without feeling stress, as I am focused on the long-term, and are confident on the future growth potential of the stocks I owned, despite the crisis.
3) I will go hysterical and I cannot sleep, seeing the “sea of red” in my stock portfolio. And if I lost my job during the crisis, I will not have enough cash to tide through the situation. I will feel very stress.
Therefore, you have to know your own situation and more importantly, you have to know yourself well, if the worst situation is to take place.
ROLF’S FINAL THOUGHTS
To be honest, it is impossible to predict if there will be a near term crash due to second wave, or if there will be a repeat of Dot.com crisis. Or if there will be a finding of covid cure in the very near future. All we can do now, is to consider all possibilities and to be prepared for the worst. If you prefer to invest now, then please have the right mindset to be mentally prepared for all events possible in future.
Personally, I like to be prepared for both the good and bad situations in life! I am usually more conservative in my investments, as I refrain myself from making big risky bets, or putting all baskets in one egg. That is the reason why I am not a big winner at most times. That being said, I also have lesser paper losses or even positive figures, in times of crisis, as I try to create a portfolio that is protecting both the downside and appreciating the upside over time (hopefully).
This is the reason why I always have precious metal as hedge. If stocks are to crash, precious metals are likely to rise. Then I can realize the profits of precious metals to take advantage of low stock prices. But what if both precious metals and equities suddenly defy logic and goes in the same direction of crash? Then you should always keep cash! What if you do not have precious metals, and do not have cash? Then you should have a “strong stomach” and be totally oblivious to the unrealized paper losses, if a crisis is to take place.
What if you do not have all the above? Then don’t invest! Simple as that! 🙂
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