Wealth Planning CI Brightworth Private Wealth

The tech wreck stocks today

Inflation is the highest it has been in four decades1 and the question on many investors’ minds is, “how did we get here?”

With almost no inflation for years and years, it feels like suddenly we’re dealing with runaway inflation. Now, the Fed is increasing rates to temper inflation. Mike DeWitt from CI Brightworth Investment Committee says it’s an enormous amount of monetary stimulus that has led us to the current inflationary environment.

In the last three years, DeWitt explains, we’ve seen the S&P generate annual returns of over 20%. This is well above average for long-term stock market returns and realistically, we couldn’t expect these returns to go on forever. So now, we are in a period of market decline. Stock and bond prices have largely moved lower this year, which many observers attribute to interest rates going up. Rising interest rates is what is causing most of the volatility, in our view.

Will we see another dotcom bubble burst?

Technology is the largest sector in the US economy, and rising interest rates are causing the sector to take a major hit. Now many are questioning if we might see something like another dotcom bubble burst.

For those who don’t remember the dotcom bubble, the story goes like this. As the internet was coming to fruition in the late ‘nineties and early 2000s, there appeared to be a stock market love affair with  technology. Seemingly anything with ‘.com’ at the end had a valuation higher than what market participants had largely ever seen before. Companies with no earnings and no revenues, or plans for revenue, were being overvalued. And then, things crashed. Even Amazon, one of the biggest companies in our economy today was down 90% during the dotcom burst. The NASDAQ dropped 78%.

DeWitt says an important lesson that came out of the dotcom bubble is that the dotcom companies and the internet ended up becoming everything they were advertised to be, and then some. Just think of the technology, the iPhones, and the other advancement that have transformed businesses and made our lives easier and more productive.

While there are similarities between what is going on today and what happened during the dotcom bubble, DeWitt believes they are not quite the same. Like the dotcom era, many tech valuations have gotten ahead of themselves. However, unlike the dotcom era, most of these companies today are turning a profit and, we aren’t dealing with completely new technology like the internet. Even with innovations in artificial intelligence (AI) and biotech, there is a better understanding of where revenues and earnings are going to come from. So, while things are different, for investors with portfolios loaded up with tech companies, it has been a painful time.

What can Investors do?

As an investor, what should you do? Is it time to run for the hills, or should you start buying things up? DeWitt provides advice on how to deal with the current markets.

Play the long game.

While you might feel uncomfortable with the market right now, keep looking forward to the future and play the long game. It is generally not a good idea to change your portfolio strategy in the middle of high volatility.

Diversify.

If you’re working in corporate America, make sure you don’t have all your human capital and investment capital tied up in one company, whether it’s in tech or not. Even though bonds are down, they can still play an important role as they act as a good diversifier in most markets. The same goes for other assets like real estate.

Don’t stop saving.

For those who are working, don’t let the state of the market stop you from saving. Keep pumping money into your 401K and keep saving for your future. This is something you have control over – how much money you save and put away for your future.

We will continue to innovate

Stocks and bonds are down, and the tech sector has been hit hard. There are no two ways about it but, DeWitt believes, that if you have faith in general capitalism and free markets, we’re going to continue to innovate. We’re going to continue to make profits as companies and as industries, and this will lead to returns down the road.


ABOUT THE AUTHOR

Lisa Brown

Lisa Brown

Partner

Lisa is the Practice Area Leader for Corporate Executives at CI Brightworth and is the current chairwoman of CIPW’s Business Development Committee. In addition to serving clients, Lisa has published three books, Girl Talk, Money Talk. The Smart Girl’s Guide to Money After College; Girl Talk, Money Talk II. Financially Fit and Fabulous in Your 40s and 50s; and CI Brightworth’s first book, Building Your Wealth Inside Corporate America. Lisa has been featured in The New York Times, The Wall Street Journal, YahooFinance, CNBC.com, and many more. A frequent speaker at seminars across the country, she also produces a podcast series, Taking Stock with Lisa Brown, with regular financial content for busy professionals, in under 30 minutes.




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