Quantum Wealth Summary

 

  • Tech stocks have experienced a rough ride lately, underperforming compared to value stocks
  • As inflation persists and interest rates climb, will this divergence get wider?
  • We examine 2 tech stocks straddling the razor’s edge, with risk factors that investors need to be aware of

 

 

Are you getting a good night’s sleep?

Perhaps this is the best measurement of your peace of mind.

This is especially true in a world that appears to dwell on bad news. More so since the pandemic hit.

According to psychologists, Covid has caused insomnia rates to skyrocket around the world. People are worried about their jobs. Worried about their finances. Worried about their future.

In the United States, the annual inflation rate reportedly hit 6.8% in December 2021. It’s the highest we’ve seen since 1982. As a result, interest rates will need to be raised to contain this problem.

You can feel the urgency. Federal Reserve chairman Jerome Powell has warned that if surging prices are not dealt with decisively, the job market could be crippled. And so goes the job market, so goes the economy.

Indeed, from Washington to London to Wellington, this is the global issue that governments across the world are grappling with — which is why the belt-tightening has already started in earnest.

All this contributes to a sense of unease that keeps regular folks tossing and turning at night. It’s a double whammy. The rising cost of living and the rising cost of debt. Both problems are interlinked.

So, it’s time for the most urgent question of all: if you’re an investor, what if this trend impacts you negatively? Will you lose sleep if there’s turbulence in your portfolio?

  • What if it falls by 20%?
  • What if it falls by 40%?
  • What if it falls by 60%?
  • What if it falls by 80%?

Or…will you still sleep like a baby, regardless of what the fall looks like?

I suppose it comes down to your individual personality, as well as your appetite for risk.

Still, there’s no denying it: if you have a habit of investing heavily in speculative tech, then you already know what it feels like to be in the red.

As the Chinese say: ‘Death by a thousand cuts.’

While value sectors like energy and financials have done exceptionally well lately, tech has gone in the opposite direction.

The proof is in the pudding. Just look at how the different sectors in the S&P Index have performed on average over the past 30 days:

 

Source: Select Sector SPDRs

 

Tech stocks have suffered a drawdown because of three key reasons:

  • Many of them are expensive and overvalued
  • Many of them carry heavy debt
  • Many of them have no competitive advantage

Remember: we’re in an inflationary environment now, which means tech is now burdened with a risk premium. Stocks in this sector now find themselves in a position of having to justify themselves relative to other asset classes.

So, keeping all of this in mind, here are 2 tech stocks that were once considered trendy and fashionable — but they have since shed over 70% of their share price over the past year.

A light-hearted warning here: do not embrace these stocks unless you want to experience a roller-coaster ride filled with extreme volatility.

Indeed, this is a cautionary tale of *how not to invest* if you’re looking for long-term stability and sanity in your portfolio…