Beware of the Tech Bubble

 

MarketCycle Wealth Management

 

Published on July 10, 2020

When the March bear market reached within a couple of days of its panic bottom, MarketCycle sold a chunk of the protective assets that it had purchased in client accounts (purchased several weeks before the March drop) and we wanted to make use of the resultant freed up money.  We saw two strong options:

  1. Closed-End-Funds (CEFs) that were selling at an historic discount to their net-asset-value (they were priced extremely cheap) and that represented particular types of assets that would take advantage of the coming stock rebound (preferreds, convertibles and high-yield) and that paid extreme amounts of interest (as in 8-15% interest).  [Very few investors use CEFs because they don’t understand how to exploit the CEF’s complex nature.]
  2. Technology stocks, especially innovative technology and the FAANG stocks of Facebook, Amazon, Apple, Netflix and Google (now named Alphabet)

MarketCycle strongly believes that technology stocks will lead the overall stock market higher over the next decade, so we were tempted to put our new money into this.  However, in our final analysis, the CEFs offered just too great of an intermediate-term opportunity to pass up So, we ultimately chose the CEFs.  In early 2009, off of the Financial Crash bottom, we held these assets for several years as they proceeded to make 4x what the stock market did and with much less risk.

As far as stocks are concerned, technology stocks did lead the market advance off of the recent March lows.  Currently, the general stock market is not overbought, however technology stocks are now extremely overbought.  Overbought assets eventually fall… even mini-bubbles pop.

Basically what this means is that there may soon be a better opportunity to purchase these technology stocks after a mild pullback (possible pullback during July?).

To answer a client’s recent question as to why the recent big March stock market bust recovered so quickly:  “It is difficult to keep a strong secular stock market bull held down, and it still has a lot of run left in it.”

So, while technology and the tech-heavy Nasdaq-100 might even fall as much as 6% in the very near term, it will, in my opinion, grind much higher over the next decade.  Regardless of any pullbacks, we are in a very strong secular bull market for stocks.

 

 

Thanks for reading!  If you like what we do, then please help to spread the word.  We do not advertise; we completely depend on direct referrals from people like you.

MarketCycle Wealth Management is in the business of safely navigating your investment account through rough waters.  We have clients all across the globe; our fees are low; the first 3 months are at no charge.  We earn our keep!

SUBSCRIBE    to this free monthly blog (with no spam!) via the signup on the website.

 

 

MARKET CYCLE  —  DUAL MOMENTUM  —  LOW VOLATILITY  —  TREND FOLLOWING  —  HEDGE FUND

Share on Facebook
Print this Page
MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only, is not considered an individualized recommendation or personalized investment advice, may not be suitable for everyone and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Past performance or performance charts are not a guarantee of future performance. Portfolio performance charts are shown net of fees so the management fee, brokerage fees, trading fees and ETF fees have already been subtracted. Current performance may be higher or lower than that shown and differing accounts may show different results. Investment returns and principal value in client accounts will fluctuate. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Be sure to consult with a tax professional before implementing any investment strategy.