Updated: May 18
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** YouTube Commentary** : Here
The finish to last week was great. It made a lot of us feel like there is hope, and a floor, for tech and growth, especially growth. A lot of the charts for growth stocks are looking the same right now. March dipped; April flat; May down further. Many are bouncing off of major support as well. The question that everyone wants to know is if this is the bottom. There are two clear schools of thought circulating in the media right now. One that this is most likely the bottom of the tech/growth dip and that there is about to be a mini bull run for the broad sector. Two is that tech and growth are bound to short squeeze for little reason and when they do, if you haven't already, lock in some profits and switch the capital to more safe cyclicals.
I can see and understand the arguments for both strategies and even if this isn't the exact bottom of the growth dip, it will eventually come. It is just a matter of time before money starts flowing back into tech stocks; eventually all upside for cyclicals will get priced in and investors will not see further upside.
Actually the past month was full of great earnings from major tech companies. The companies are GOOD, but the stocks are BAD right now. If you are investing on fundamentals only, you should see this as a great buying opportunity for these tech companies, such as Apple, Facebook or Amazon. Of course, these are blue chip, and you can't really go long with blue chip tech stocks that have revolutionized our generation. However, more interesting are the smaller cap growth. There are way to many to list and draw up technical analysis for. So let's take a look at basically a growth and innovation ETF, $ARKK.
ARKK consists of all of the smaller cap growth and innovation stocks that ran up so much last year, and years before. It is an interesting holding for a portfolio, but I'd not recommend to much weight, as it tend to be volatile. If you are considering buying the dip right now, it is a valid strategy. However, consider that this might not be the bottom and you might need to average down until the bottom is hit. As always, I highly recommend dollar cost averaging. This is very important right now. Once the inflation fears are priced in and cyclicals are seen as way overvalued, money should flow back into growth. I also think that once more earnings come out for these cyclical stocks, more and more investors will start turning away.
I like to use the airline example to represent this. The big airliner companies were never really making money before Covid-19 and were bailed out countless times, it seems. So why now are we being pushed into buying JETS or other companies? Why do people assume they are making money now, if they never really did? While I can understand that they are still under valued since the Covid crushed them, however it is most likely priced in. More so, I am highly skeptical that the summer will bring huge numbers for these companies. Travel won't be as much as some think, in my opinion. This example can basically be cookie cluttered into many cyclicals.
Overall, if you are one of those who like buying the dip, I'd recommend that you start small and DCA. If you don't need the money, this is a valid strategy for the long term investor. However if you do need the money, and you want to chase the short/mid term gains, maybe you are more interested in my previous article on dividend stocks.
Another valid strategy for right now. It is much more conservative. Because during a high inflationary environment, especially with the 10 year treasury bonds rising like bread in the oven, safe dividend stock flourish. If you look at $SDY, a common dividend ETF, these stocks have done great this year.
Not to mention you get almost a 3% dividend yield. $SDY has had an average of 15% yearly appreciation. This is one of the safest things to be invested in, in my opinion. Good dividend stocks, plus you are diversified since it is an ETF. It is attractive to say the least. One of the only other stocks that I would find more attractive right now is $O, Realty Income. $O is an REIT that has grown at a average rate of 28% per year since 1994, which is including the 2008 crash! Plus $O has a 4.5% dividend yield. $O is an REIT so it is not as well diversified and you will need caution if there is a time where real estate might start dropping. (raising interest rates). Overall, I think a mixture of ETFs and stocks are great for this strategy.
So, if you are hurting to see your tech portfolio dip and dip, maybe you should join the school of take the profits while its up, and invest into dividend stocks. Or, maybe you are a long term investor that can take more risk right now buying the cheap growth stocks that eventually will break out of their downtrend. OR, maybe you like both strategies like myself and have a hard time deciding, so you do both. Of course, only you can answer that question.
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