We’ve come to view the annual Federal budget in much the same way that a turkey may view Christmas.
The outcome is inevitable. It would be great if they would just get it over and done with rather than prolonging the agony.
So today we’ll try to spare you the agony of budget boredom.
What’s more important is whether the technology stock rally is over, or if this is just a pause before the rally resumes…
From the start of the year until now the US NASDAQ Composite index is down 0.25%.
That’s not much.
It’s a little worse if you take the starting point from early March. Since then the index is down 4.9%.
But even taking that drop into account, the NASDAQ is still 20.6% higher than it was one year ago.
Of course, the index only reflects the performance of a select number of stocks. While the index has fallen only marginally, some tech stocks have fallen much more than 6.4% since March.
Time for panic? Not a chance…
Breaking news: stocks go up and down
This isn’t the first and it won’t be the last time that the market has pummelled stocks after a strong run.
Look at any price chart over any timeframe and you’ll see periods of ups and downs. That’s what happens. That’s what you get on the stock market.
The question is whether this will be another one of those times when the market rebounds, or whether this is just the beginning of a much bigger fall?
As always, you’ll only know for certain after the event.
But while that may be true, it’s not particularly helpful advice. By the same token there’s no point in guessing either.
What you need to do is make an informed decision based on what you believe are likely events. This also means making sure you don’t have too much exposure to any particular stock or sector.
But it means something else too. Any period of falling stocks means an opportunity to buy stocks at a cheaper price.
The thing is, you can only do that if you actively manage your investments, take care of your cash flow, and be disciplined enough to make sure that you don’t overpay for a stock.
Let’s look at what we mean by that in more detail.
Cash can be your best friend in a falling market
When we talk about actively managing your investments we don’t necessarily mean trading in and out of stocks. Actively managing your investments can simply mean keeping an eye on them.
Or it could mean delaying a planned stock purchase if the price is too high, or buying a few more shares of a company you already own if it offers shares through a purchase plan or rights issue.
In short, it means taking an interest in your investments.
That’s where managing your cash flow also plays a key part. Our view on stock investing is that you should always have a big cash buffer. For two reasons. One, you should hold cash because it’s the most liquid asset you can own.
And second, having a decent cash balance means that if the market hits a short-term bump you’ll have spare money to buy a stock or two at a cheaper price.
Finally, make sure you don’t overpay for a stock. We always publish buy-up-to prices in Australian Small-Cap Investigator, Diggers and Drillers, and Revolutionary Tech Investor.
This indicates the maximum price an investor should pay for a stock. This is important, because sometimes a stock can climb higher much faster than you expect. And you know what that means? A stock can fall much faster than you expect too.
That’s exactly what has happened in the tech sector over the past two months. And it’s why there are now so many speculative opportunities in the tech sector.
Will investors buy low?
Tech analyst Sam Volkering knows all about this.
For the past few months he has fielded comments from subscribers of his premium technology research service Revolutionary Tech Investor.
They weren’t angry because stock prices had fallen. They were angry because Sam wouldn’t raise the buy-up-to price on a number of his stock picks.
Some of these subscribers wanted to pay the higher price, but Sam refused to raise the buy-up-to price on most of the stocks. That’s because these revolutionary stocks are for the long-term, not for short-term trading opportunities.
As it happens, several of these stocks are now back below the original buy-up-to prices. That makes them a great buying opportunity. We’re talking about 3D printing stocks, game-changing biotech stocks, and leading edge immersive technology stocks.
Sure, as well as being an opportunity, these stocks are risky too. But if you want the biggest returns you’ve got to take risks. And as far as tech stocks go, now’s the time to take those risks.
Will everyone take advantage of these new beaten-down prices? Probably not. After all, as we’ve mentioned before, most investors prefer to buy high and sell low. Very few investors — real contrarian investors — actually ever do what an investor should; buy low and sell high.
Cheers,
Kris+
PS: The tech sector is full of exciting, breakthrough firms. But it also covers established telecom companies like Telstra, Optus, and Vodafone. Check out the Money Morning Premium Notes to discover whether now could be a good time to buy the biggest of the bunch — Telstra.
To find out more about Money Morning Premium, including how you can upgrade your membership now, click here.
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