Is It Safe To Invest In Tech?
Over the past decade, the most popular technology companies coined the FANG (Facebook, Apple, Netflix, Google) have continually gone up in the stock market, rewarding their investors quite nicely with their huge returns year after year.
A recent article by City A.M. stated that these FANG companies are up over 50% per average per year. These are not the only technology companies that have captured the adoration of Wall Street. Other popular tech companies have done equally as well.
The technology sector looks extremely promising, but is it safe for investors to put their money into it? The technology sector went through a bubble and subsequent burst in the early 2000s. Some predict that the same situation is inevitable.
However, tech giants such as Apple and Microsoft persisted throughout the depression and turned into mega-tech giants.
Here are some ways that you can safely invest in tech and avoid the next bubble.
Don’t Invest Blindly in Companies
One of the reasons investors lost out in the Dot Com Bubble of 2000 was that they were investing in “unicorn” companies that had no real value or history of financial performance. These new hot tech companies did well in the stock market simply because of their reputation and not because of their performance.
Don’t get caught up in investing in similar companies this time around. Make sure that the company is valued for what they provide versus their reputation.
How Much Cash Does the Company Have on Hand?
Can the company that you’re investing in withstand a depression? Check the company’s annual report, also known as a 10K, to see how much money they make and how much money they have on hand.
Over the past few years, many tech companies have been stockpiling cash in preparation for a recession. Apple has nearly $17 billion in cash, excluding money that they include in their $177 billion figure that’s saved in long-term marketable securities. Google has $92 billion in cash and Amazon has $22 billion in cash.
With this much money on hand, an investor can rest assured that they won’t easily go out of business should a recession occur.
How Much Value Does the Company Provide
In addition to cash reserves, an investor should see how much value a company is providing. For some companies, the value provided is overwhelming. Take Google for example; their search engine algorithm has become so ingrained in our everyday culture that we can’t do anything without “Googling” something first. In addition to this inoculation on our culture, Google’s name has become synonymous with search for something on the internet. It’s safe to say that a company like Google won’t be going away anytime soon.
If there’s one thing that we all know, it’s that the economy goes through cycles of boom and busts. There will be another recession. However, the stock market has continued to go on in an upward trend since it was created and will more likely continue to do so in the future. As long as you take the time to do your research on a company, study its financials and the value it provides, you should feel comfortable in investing in a technology company for the long run.