Chris’ note: Markets have been a bloodbath since the start of the year. Tech stocks have been some of the worst victims. It can be hard to keep your cool as an investor.
So today, tech expert Jeff Brown will try to ease your mind. Below, he shares his own investing experience – including the biggest investing mistake he ever made – and how it should give you perspective on the markets.
All three major U.S. market indices are down at least 8% since 2022 began. The tech-heavy Nasdaq has fared the worst, falling 23% since the start of the year.
Small-capitalization growth stocks haven’t done well in this environment. But even the most well-run, large-capitalization companies are down. Apple (AAPL), Amazon (AMZN), and Meta (FB) are down 18%, 29%, and 42% respectively.
When three of the best businesses in modern history are down by double digits like this, we know there’s fear in the market.
There’s no short answer for why stocks are selling off like this…
Some of it is from inflationary fears. Some is from the uncertainty of what the Federal Reserve will or won’t do next. Some is from geopolitical uncertainty.
My team has been working tirelessly to stay on top of these developments. In The Bleeding Edge, I’ve covered each of these topics in the past few weeks. And I’ll continue to do so.
But I know that type of analysis helps only so much. When we look at our portfolios every day and see oceans of red, it hurts.
So today, I’m sharing some of my personal investing experience. I’ll tell you about the biggest investing mistake I ever made… and how it’s shaped my perspective on investing in general.
I bought my first stock when I was 16 years old. It was in Recoton, a consumer electronics company. I invested a couple of hundred dollars I’d earned from mowing lawns. It was a lot of money to me at the time.
I never looked back. For almost 40 years since, I’ve been an active investor.
Of course, it hasn’t been a completely smooth ride. Investing over the long term never is.
I was only 18 on Black Monday, the October 1987 crash that sent the Dow Jones down 22% in one day. I didn’t have much in the markets then, so it didn’t mean much to me.
The first big downturn that hurt me was when the dot-com bubble burst in 2000. I was in my early 30s. I’d been working in high tech – specifically the cable and telecom industry – for about five years.
And when stocks began falling in the spring of 2000 – with no apparent end in sight – it shook me. So I did something that might surprise you. For a time, I stepped away entirely from technology investing.
Instead, I focused on precious metals. I bought physical gold and silver. I invested in gold miners and junior exploration companies.
I taught myself about a new industry, which led me deeper into the world of commodities and futures options. It was a fantastic, profitable experience.
But to this day, I regret selling my tech stocks.
After the dot-com bust, it seemed smart to step back from the rubble. I mistakenly associated all companies with the chaos. I didn’t understand how to value a company.
That meant missing out on once-in-a-lifetime buying opportunities in some of the highest-growth companies in history.
I was working in the tech industry. I knew which companies would bounce back and deliver incredible returns off their lows. But I didn’t take advantage.
For instance, Qualcomm (QCOM) was a company I knew very well. It was at the forefront of code division multiple access, which was the best tech for increasing traffic on wireless networks.
I knew its tech and semiconductors would be critical to the mass adoption of mobile phones, which were in their infancy at the time. Ironically, I ended up working at Qualcomm years later.
In 2000, the stock fell to $8 – a nearly 87% drop from its peak. It now trades for over $142, a 1,675% return from that low.
Cisco (CSCO) was another company I was familiar with and invested in. In 2000, the stock got way ahead of itself, climbing on the promise that the internet would reshape society and Cisco would supply the essential network infrastructure. The stock fell a breathtaking 80% during the crash.
But the internet did change the world. And Cisco did become a giant in network infrastructure. It now trades for around $45, up 543% from its all-time low of around $7 after the bust.
Then there’s Amazon…
We’d be hard-pressed to find a more iconic success story. Today, the company is a $1 trillion behemoth. It dominates the U.S.’ e-commerce and cloud services industries.
But 20 years ago, Amazon had crashed more than 90%. Today, the stock trades for around $2,000, up 40,527% from its bottom.
Of course, some companies didn’t make it out of the carnage. For every Qualcomm, there was a Webvan, a grocery-delivery service years ahead of its time that went bankrupt in 2001. For every Amazon, there was a Pets.com, the poster child for dot-com exuberance that went bankrupt in 2000.
But even a small investment in the companies that survived would’ve delivered spectacular returns. I never had that opportunity because I let volatility shake me out of investments I knew could change my life.
First, I want to assure you that I don’t believe we’re in another dot-com scenario. Back then, companies were going public with little more than vague business plans and a “dot com” in their names.
The companies I profile today aren’t fluffy ideas. The large-cap companies I recommend in my Near Future Report advisory are well-established businesses that are growing their revenues and offering new products and services.
The small-cap companies I recommend at Exponential Tech Investor have proven tech products or services with the potential to disrupt entire industries.
Times are very different now. But I know that’s little consolation when we see the type of selling we’re seeing today.
We’re all suffering from the volatility – myself included. But things will get better.
For starters, many of the tech companies I follow are now trading at valuation multiples so low I can scarcely believe it.
Block (SQ) – formerly Square – now trades at an enterprise-value-to-sales ratio (EV/sales) of 3.1. The only time the company was cheaper was in 2016, the year after the company’s IPO (initial public offering). Not even during the crash of 2020 was the stock this attractive on a valuation basis.
Illumina (ILMN) – the undisputed king of gene-sequencing tech – trades at an EV/sales of 8.4. The last time the stock traded this cheaply was in 2016. Again, even during the 2020 crash, Illumina never traded this cheaply.
Then there’s Shopify (SHOP), one of the only companies to carve out a niche in e-commerce that Amazon couldn’t fulfill. The stock is 78% below its highs. It now trades at its lowest valuation since 2016.
I know it can feel like the selling will never end. You may be tempted to walk away. That’s what I did more than 20 years ago, and I’ve always regretted it.
But great companies like these won’t stay at valuations this low forever. Things will turn around. It may not happen tomorrow or next week, but it will happen.
So what should we do in the meantime?
Very few people know this, but I practice the ancient philosophy of Stoicism. The Stoics tell us we should recognize what’s in our control and what isn’t, then proceed accordingly.
Markets are volatile now. We can’t control that. But we can control how we respond.
I step aside each day to use my rowing machine or work with kettlebells to maintain and improve my health. It’s hard to go wrong with getting some exercise.
If you feel anxious looking at the daily swings in the markets, take a walk with the dog or a good friend. Go work in the garden for a few hours. Perhaps there’s a screen door you’ve been meaning to fix.
The markets will still be here when you get back. So will I, offering my guidance to you.
We still have so much to look forward to.
Editor, The Bleeding Edge