How Tech Stocks Will Keep You Out of Trouble

For many years, the FAANG stocks had been one of the safest bets for money managers.

11:41 09 April 2019

However, disrupted and marred by trade tensions between the U.S. and China and Trump's corporate tax policies, the shares of the 5 major tech-giants -- Facebook, Amazon, Apple, Netflix, and Google -- recently plummeted to a new low. Concerns about a FAANG bubble erupted in early 2018 and by November 2018, the FAANG companies had lost more than a trillion dollars from their peak evaluation. Apparently, this latest development has hurt investor sentiment and made stockholders and traders wary of investing in the stocks of technology companies.

Is Investing in Tech Companies a Smart Decision?

With the current market sentiment taking a toll, a relevant question to ask today is: are technology companies a smart investment? The simple answer is yes, they are. If you have been wondering how tech stocks will keep you out of trouble in these uncertain times, read on.

Investing in a tech company is a smart decision. However, the money you make will depend on the stocks you buy and the companies you invest in. The plummeting of FAANG stocks has left behind many lessons to be learned by potential investors.

Here are 3 things you must remember to avoid facing trouble while investing in a technology company.

1. Invest in Companies that aim to create disruption and have the resources to accomplish this:

All big companies established their foothold by completely disrupting the market. Apple's iPhone put giants like Nokia, Motorola, and Blackberry out of business. Similarly, Facebook became one of the technological giants after it successfully completely eroded Orkut and MySpace from the market. Amazon, at one point, almost drove yesteryear 's Big Buy out of business. If you want your money to grow, bet on companies that have a unique structure, ample financial backing and the will to disrupt the market.

2. Companies with niche dominance are a safe bet:

This is yet another important lesson to be learned from FAANG companies -- put your money in companies that use their expertise in one market to diversify into other markets. Amazon started off as an e-retailer of compact discs, videos, books, and computer software and hardware. Today, it is a multinational technology company that specializes in e-commerce, cloud computing, and artificial intelligence. Similarly, Google, which essentially started as a search engine, today specializes in online advertising technologies, cloud computing, software, and hardware. For stock buyers, companies with dominance in one or more areas and plans of diversification in other areas can bring in long-term growth.

3. Stocks grow and become mature stocks:

Once a company's stocks become mature, it is quite unlikely that their price will increase. However, if you invest at the right time, these stocks can bring you a lot of money. Moreover, mature stocks will always bring some stability to your portfolio, which, in the larger scheme of things, is a positive development.

Stock buyers and investors often confess that they stay away from technology companies as they don't understand the working of these companies well and thus, are not in the right position to understand the future potential of their stocks. However, not all tech companies have a complex structure or business model. In 2016, Warren Buffet, one of the biggest tech agnostics, invested in Apple and has been its staunch supporter since then. His decision is a constant reminder that buying stocks in technology giants is a good idea, one that can reap great returns.