What The Massive Selloff In US Tech Stocks Teaches Us About Investing
Maybe your like
- Home
- Markets
- Market News
- Stock Markets
- IPO
- US Markets
- Mark to Market
- Bonds
- Commodities
- Cryptocurrency
- Market Data
- Stock Pages
- Index pages
- Bullion
- Gold
- Silver
- Fuel
- Petrol
- Diesel
- News
- India
- World
- WSJ
- Economist
- US News
- Trends
- IPO
- Latest News
- Companies
- Start-ups
- Company Results
- People
- Money
- Personal Finance
- Insurance
- Ask Mint Money
- Mutual Funds
- MyMint
- Sensex Crash
- Technology
- Gadgets
- Tech Reviews
- App News
- 5G Tech
- Foldable Smartphones
- Mint Hindi
- More
- Election 2026
- Sports
- Cricket News
- T20 World Cup
- T20 WC Points Table
- Most Runs in T20 World Cup
- Most Wickets in T20 World Cup
- Science
- Health
- Entertainment
- Tools
- IFSC Code Finder
- Income Tax Calculator
- Gold Rate Today
- Gold Rate in Delhi
- Gold Rate Hyderabad
- Silver Rate Today
- Silver Rate in Delhi
- Silver Rate in Bangalore
- US
- US Trending
- Hollywood
- Business
- US Stock Market
- Explore Mint
- About us
- Print subscription
- Subscriber terms of use
- Privacy Policy
- Terms of Use
- Disclaimer
- Mint code
- Cookie Policy
- Code of ethics
- Sitemap
- Contact Us
- Hindustan Times
- Live Hindustan
- HT US News
- Nifty 50
- Auto News
- Mint Money
- US Iran News
- REITS
- Subscribe
- My Watchlist
- Newsletters
- My Vouchers
- Notifications
- My Reads
- For You
- Market Dashboard
- Fuel
- Petrol
- Diesel
- Commodities
- MCX Gold Rate
- MCX Silver Price
- GoldM
- SilverM
- CrudeOil
- Cryptocurrency
- Smart Money
- Gold Prices Today
- Gold Price in Delhi
- Gold Price in Mumbai
- Gold Price in Chennai
- Gold Price in Hyderabad
- Gold Price in Kolkata
- Silver Prices Today
- Silver Price in Delhi
- Silver Price in Mumbai
- Silver Price in Chennai
- Silver Price in Hyderabad
- Silver Price in Kolkata
- Latest News Today
- India News
- World News
- Trends
- US News Today
- Markets
- Stock Markets
- IPO News
- US Stock Market Today
- Mark To Market
- Bonds
- Commodity News
- Cryptocurrency
- Companies
- Start-ups
- Company Results
- Top Company Leader
- Premium
- Money News
- Personal Finance
- Economy
- Technology News
- Tech News
- Gadgets
- Tech Reviews
- App News
- Personal Loan
- personal loan emi calculator
- Personal Loan Interest Rate
- Personal Loan Eligibility
- Business Loan
- Instant Personal Loan
- Brand Studio
- Oracle CXO Leaders DialogueCXO Leaders Dialogue
- Oracle CXO Leaders Dialogue Hyderabad
- Oracle Seamless Cloud Migration
- Oracle Scaling Ambitions
- Oracle Mastering Multi cloud Strategy
- Zoho The Long Game
- Thoughtworks Digital Banking Platform Journey
- Lentra The State of Credit
- Mirae Asset MF Winning Over Volatility
- PGIM India MF Amend, Adjust, Adapt
- Goalteller Personal Financial Strategies
- Oracle Unlock The Value of CX
- Microsoft Future Tech Series
- Zoho Navigating The Future Of Work
- Databricks Generation AI Series
- Microsoft Future Ready
- Salesforce Tech4good Awards
- Rolling with the Boss
- Fairfox The Unstoppables
- Focus
- e-paper
- WSJ
- Economist
- Barron's
- MyMint
- Mint Premium
- IFSC Code Finder
- Income Tax Calculator
- SIP Calculator
- EMI Calculator
- Home Loan EMI Calculator
- Car Loan EMI
- NPS Calculator
- Videos
- Photo Gallery
- Podcasts
- Mint Lounge
- Mint Hindi
- Livehindustan
- Hindustan Times
- About Us
- Print Subscription
- Mint Authors
- Contact Us
- Privacy and cookie settings
GlobalWhat the massive selloff in US tech stocks teaches us about investing Equitymaster5 min read23 Jun 2022, 02:52 PM IST
- Tech stocks in the US have crashed. What can we learn from this episode?
As I write this, the NASDAQ Composite Index is down 33% from its peak in mid-November 2021.
This US stock market index is the most widely tracked measure of tech stock prices.
Tech stocks have been the leaders of the rally in global stock markets since March 2020. In just 20 months, the NASDAQ Composite soared from 7,000 to 16,000.
Major tech stocks delivered multibagger returns over 2020-2021.
But the situation has completely changed this year. Tech stocks have been the leaders of the market decline. Most US tech stocks are down. Many are down more that the index. Some have lost more than 50% of their marketcap.
Well-known, highly popular stocks like DocuSign (-79%), Etsy (-75%), Moderna (-75%), PayPal (-75%), Netflix (-74%), and Zoom Video Communications (-74%), have been the biggest losers.
And what about the biggest tech stocks?
Well, from their all-time highs, Apple is down 25%, Goggle is down 28%, Amazon is down 41%, Nvidia is down 50%, and Meta (parent of Facebook) is down 59%.
These are massive declines. And there could be more declines in store.
In the latest earnings calls, the management of these firms have warned of declines in revenues and profits. This only adds to the concerns about a slowdown in their growth that is already underway.
Also, the latest investments made by these firms in futuristic areas like Artificial Intelligence, metaverse and the like are still unproven. Revenues and profits could take years to scale up to a significant level.
Then there are other issues like the business disruptions caused by the Russia-Ukraine war and the global semiconductor shortage which is likely to extend well into 2023.
The latest concerns of investors include soaring inflation, rising interest rates, and declining consumer spending. These are all reasons for the stock market fall.
To add to this there is fear in the market of the US economy dipping into a recession. In fact some market gurus believe the US is already in a recession.
The US economy contracted in the January-March quarter. A recession is defined as two consecutive quarters of declining GDP growth. Thus, if the April-June quarter’s GDP growth number (to be announced at the end of July) is also negative, it would confirm the US is in a recession.
This would be extremely bearish news for tech stocks which have already fallen into a bear market. It’s no wonder investors don’t want to touch these stocks.
So what can we learn from this debacle?
· What goes up must come down
2022 will be remembered as the year investors woke up to the fact that markets don’t go up in a straight line.
If an asset has risen far is excess of its fundamentals, then the likelihood of a crash is high. The only question is the timing of the correction.
2020 and 2021 were historic years for tech stocks. The tech rally brought back memories of the tech boom of the 1990s. But there was a difference this time.
You see, back in the 1990s technology as a sector was not a huge part of the benchmark indices in the US. This time around they were the backbone of the market. Not only were the stocks large in terms of marketcap, but they were also outperforming.
This meant that most ordinary investors had already jumped onboard this rally and were profiting from it. They were hit hard when the momentum in these stocks reversed.
This brings us to the next lesson.
· Size is no guarantee of safety
It’s natural for investors to think of large bluechip stocks as safe haven investments. But when these stocks are also delivering great returns, the temptation can be overwhelming.
Why bother doing any research or due diligence when the companies are dominant in their market and well-understood by analysts?
Retail investors thought they could not go wrong as they were buying large stable tech companies which were changing the world.
That is not a smart way to invest. Profits for an investor is not assured in a largecap even if it’s widely held and is a favourite of the market. Just look at Amazon and Tesla.
· The hottest stock may not be the best stock
A big reason for the huge rise in tech stocks was that they had a good story to tell.
They wanted everyone to believe they were changing the world. Thus, the potential growth in revenues was unlimited.
It was a good story and it helped to drive their share prices higher.
But the problem with story driven stocks is that if the story changes, the stocks crash. Even worse, the company’s story doesn’t need to change for the stock to crash. A change in the market sentiment is enough.
Just look at Amazon. Its business hasn’t changed in 2022. The story is unchanged. But the stock has crashed because the market sentiment has changed. And when that happens the stocks that went up the most are the ones that fall the most.
So in the long-term, the hottest stocks may not be the best…even if the business lives up to expectations. This is an important lesson to remember.
· Interest rates matter
The risk-free interest rate is like the force of gravity in the stock market. The higher it goes, the harder it is for stock prices to go up.
And the most important interest rate of all is the yield on the 10-year US government bond. It has been rising steadily since last year. It was only a matter of time before the smart money turned cautious.
This is also the reason why foreign investors have been selling Indian stocks since mid-2021. They knew interest rates were going to up due to high inflation and that would mean lower stock prices.
And the stocks that would be hit hardest would be the ones trading at high valuations. In this case, tech stocks.
Keep these lessons in mind. Investors who learn these lessons will have an edge over those who don’t.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
MoreTag » When Will The Tech Sell Off End
-
Tech Stocks Crushed In Market Selloff - CNBC
-
Wall Street Ends Down For Third Day As Growth Concerns Weigh On Tech
-
Investors Cashed Out Of Tech Stocks. The Selloff Might Be Ending.
-
After The Tech Sell-off: Will Growth Investors Keep The Faith?
-
Why Investors Are Selling Off Tech Stocks And What's Next - CNA
-
Is It The End Of The FAANG Era? Why The Market Has Turned ... - Fortune
-
Tech Sell-Off: 1 Nasdaq Stock Down 61% To Buy Before It Starts ...
-
Lessons From 2022's Tech Stock Collapse - Morningstar
-
Why So Many Tech Stocks Are Falling - TIME
-
Tech Stock Crash Could Get Worse—But Microsoft, Nvidia And More ...
-
Tech Selloff: Hedge Funds Are Dumping These 10 Stocks In 2022
-
The Worst Stock Selloff In Half A Century Might Not Be Done Yet
-
Tech's Decade Of Stock-Market Dominance Ends, For Now - WSJ
-
5 Best Chinese Stocks To Buy And Watch | Investor's Business Daily