Keeping an eye on our most successful investments
A couple of weeks ago we promised an answer to the following question: “Is the technology rally for real or is this a replay of the DotCom bust of 20 years ago?” Since asking that question, tech stocks have fallen into a quick correction. Is this September weakness the end for tech stocks?
It might be the end of the gains for this year, but long-term we still think technology is the primary driver of corporate profits. Consider the following differences between the current tech strength and what we saw in 2000-2002:
- Today’s tech companies are highly profitable. The chart below shows that tech profits are at all time highs and expected to go higher next year. Look at the collapse back in 2001 for a comparison.
- Today’s tech leaders are highly predictable businesses compared with those that dominated 20 years ago. Facebook has 8 million advertising customers. Amazon has 150 million Prime subscribers. Over 1 billion people own an iPhone. This is the true law of large numbers: millions of data points and millions of repeat customers.
- The Covid-19 epidemic has accelerated trends that favor technology, and habits are changing—we think permanently.
While we are not expecting or planning on these stocks collapsing the way so many tech stocks did in the early 2000’s, we do not think the next few months will be a repeat of the last few. In fact, booking some profits, keeping allocations under control, and (yes) paying some taxes is warranted. Stay tuned.
Daniel A. Ogden
Disclosure: Dock Street Asset Management, Inc. and our clients may own securities. This article is not intended to be used as investment advice.