Before you young investors out there get too excited about the surging stock values of technology companies like Facebook, LinkedIn, Groupon, and a
handful of others, keep in mind that we’ve been here before. The chances of a serious shakeout at some point is very high, and this shakeout is liable to leave a few companies standing strong but more will be flaming chunks of wreckage at the bottom of your stock quote chart. It wasn’t that long ago that the so-called Dot.com boom and subsequent bust was all over the news – a little more than ten years, to be specific.
A few survived. Names like Amazon, eBay, and Google lived to become legitimate business models, and, in some cases, revolutionize industries, though their stock prices have never come close to those days of heady valuation. Still, they are solid investment options today. Others, too numerous to mention, crashed and burned and took millions of investors portfolios with them.
Does this mean you should avoid the tech stock surge completely? Of course not. There is a real chance to make money with these high-fliers but remember to use your common sense. Here’s a quick reminder list for the next time you are tempted to throw all your investing capital into the next tech IPO.
1. Stay diversified and conservative – Markets are always going to have booms and busts. The entire fate of your lifetime wealth does not rest on any single cycle, unless, of course, you decide to throw it all into a spectacular failure. Whatever your investing plan is, stick with it. Don’t oversize your trades or change any of your trading rules. You do have trading rules, right?
2. Be greedy when others are scared and scared when others are greedy – This advice comes from the great man himself, Berkshire Hathaway founder and chairman, Warren Buffett. This contrarian advice should have you buying market bottoms and selling market tops, a practice that should eliminate any danger of flame-out. Buffett also suggests you look for companies that return outstanding return on capital and produce substantial cash profits.
3. Take a look at real estate – Income producing properties, to be specific. Over the long haul, this form of investing outperforms all the tech stock boom and bust cycles you’ll ever see.
Now get out there and don’t load up on the next Egghead.
The Young Wealth Team
(Flickr / zzkt)