Today I’d like to follow up by discussing the risks and rewards investors can expect with tech stocks in general. Fast-changing technology offers huge opportunities in these stocks. However, fast change can also bring danger.
Below you will see 4 risk factors you face when investing in tech stocks. Further on, we look at 4 ways you can minimize these risks—and increase your profits.
Marketing is as hard as inventing: Even a great new product or computer program may fail to overcome the scepticism of retailers and consumers.
A tech stock’s acquisitions can bring “time-bomb” risk: Companies sometimes grow quickly by buying other companies. But those selling the companies may simply want to bail out of a losing situation.
Major tech stocks also make mistakes: Junior technology stocks often trumpet their deals with major firms, such as Apple or IBM. And it’s true that Apple and IBM have vastly more knowledge and bargaining clout than any individual investor. But they still invest in products that fail.
High-tech shams are common: It’s easier to set up a company and sell stock to investors than to perfect a technological breakthrough. Be especially wary when junior technology stocks splurge on elaborate web sites and glossy investor brochures.
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4 ways to reduce risk and increase rewards with tech stocks
Diversify: The high-tech sector has more than its share of winners and duds. So invest carefully and buy 5 to 10 technology stocks instead of just one. Gains on your winners should overwhelm any losses you have.
Focus on up-and-coming technologies: For this, you need to know how technology is changing. For instance, the immense popularity of wireless devices, like the iPhone and iPad tablet computer, is increasing demand for faster, more reliable wireless networks.
Buy multi-product companies: Technological advances come in spurts, and leapfrog each other. Focus on technology stocks that have a number of existing or soon-to-be-released products, and avoid one-hit wonders.
Look for earnings: A perpetual money loser will eventually go broke, no matter how impressive its technology. But if it makes even a little money, it can stay in business and perhaps reap the bonanza of a new product.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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