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Are tech stocks in free fall?

I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 240.3 million views in the last few years.

On the answers below, taken from my online Quora answers, I focus on a range of topics including:

  • Are tech stocks in free fall? I discuss why that is wrong, and the Nasdaq has actually risen this year.
  • What is the biggest indication of business success?
  • Is investing really only for richer people? I tackle that misconception.
  • How can you look wealthy without spending much money?
  • What are some of the most undervalued investments right now?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

Why are tech stocks in free fall?

Source: Quora

They aren’t. Below is a graph of the Nasdaq this year:

main qimg c98987dff6c8f90b5ee9358e4a5df567

You can see that the market is still up for the year. Even at the worst moment the market was down 10% from the peak.

Now it is about 4%-5% below the all-time highs. Hardly a free fall.

What is true, however, is that the S&P500 and Dow Jones are doing better.

Below is a graph of the S&P500 so far this year:

main qimg 3ccf0b11e12465034b791ba98f3af8ae

The Nasdaq went up over 40% last year, whilst US Markets in general did closer to 17%. The Dow did less than 10%.

The Nasdaq was never going to outperform forever, especially as it is clear that the economy will almost for sure have a great year.

In fact, there is speculation that US growth could even hit 7%-8% this year.

Long-term, however, we aren’t going to be using less technology than today.

People buying the Nasdaq are very unlikely to lose money if they hold long-term.

There is merely a chance that more traditional firms listed on the Dow, FTSE and Japanese Nikkei, could see bigger benefits once most countries have opened up.

As a final comment I wouldn’t ready too much into short-term valuations.

Look at last year. There were two panics. The full blown one in February/March and the second one (which few remember now) in October/November.

The Nasdaq, and many stock markets, were down more than 10% from their peaks and people were concerned about a second European lockdown and uncertain election result.

Then November and December were two of the best months in recent memory.

The positive returns started even before the vaccine was discovered.

So, these ups and downs happen all the time, and often at unexpected situations.

What is the best way to predict the success of the business you have just started?

Source: Quora

There is no guaranteed way to predict which businesses will be successful and which won’t be.

If that wasn’t true everybody could make 100% per year and have a crystal ball, which would also allow us to invest in private investments like our friends businesses and know which would succeed!

The biggest indication I have seen are how much experience the owner has.

It sounds boring, I know. It doesn’t sound as interesting as somebody who gets loads of VC money, or has the next big idea.

Yet it is the truth. Most of the most successful businesses are started by people who know how to generate revenue to begin with.

Simple example. You have a real estate professional who sells properties, manages and lets them.

They get good at it and then start their own business with that knowledge, experience and sometimes contacts.

It can regularly happen where three or four people with have a breakaway company, depending on the rules stated in the contract, but it can also happen with an individual.

Real estate is just one example. The same can be said for financial services, recruitment or many other businesses.

Now sure, if the top 0.0001% of companies often are doing something different, or innovative.

The kinds of businesses with multi-billionaire or now trillion dollar valuations like Amazon, Google, Netflix etc.

Yet when I look at my network, 95%+ of the people making $250,000-$500,000+ from a private business, simply are experienced at what they do.

They got good at it before they started their own thing, but maybe made some slight changes, like started an online version which is more streamlined than their existing model.

You don’t need to reinvent the wheel to be successful in business.

You just need to be persistent, get good at something and know how to manage cashflow.

One example that strikes me is one of my friends who is a recruiter.

He got really good at his job. He started his own business but due to a divorce, needed to work from home over ten years ago looking after his kid as a single dad.

All he did for the first year or two was keep costs low by being at home, and making calls/emailing candidates and companies.

He made a lot of money even in his first year of business, as he had the contacts and skills to make it happen.

A lot of people say that investing money is not a way to wealth. What is your opinion on this?

Source: Quora

Most people unfortunately think that investing money is only for “the rich”.

It is true that in the bygone era only rich people could invest productively in the stock market.

That has changed dramatically over the last few generations and especially recently.

Now almost anybody can invest small amounts on money early on in their life when they are young.

This is important because the vast majority of wealthy people at middle-age invested money when they were young.

Most of them are middle-income and gradually accumulated over a few decades.

The point I am making is that investing is one of the few tried and tested ways to get wealthy, and now it is open to the masses.

The general market has gone up for hundreds of years in the US and several other countries.

$1 invested over time has grown hugely even adjusted for inflation:

main qimg 72bb1af036b0f9d2d7cb346a778fc9e9

What is true, however, is that many people have lost money investing or have made small amounts which are far below the stock market’s average.

The main reasons aren’t due to the market though. They are due to:

  • Stock picking. Trying to buy the next hot stocks.
  • Market timing. Trying to find the perfect time to get in, and out, of the stock market.
  • Panic selling when markets are down during moments like 2000, 2008 and early 2020.
  • Not being diversified enough between different asset classes.
  • Not being long-term enough
  • Not reinvesting dividends and instead pulling them out.
  • Other speculations not listed above.

Most people don’t understand investing, and only speak to people who also don’t, or they have done some of the above activities.

So few people know some basic facts. The most important of those is nobody, not even 0.0001% of people, has lost money if they have bought and held the indexes for a lifetime and reinvested dividends.

There are periods where markets are down, but this shouldn’t concern somebody who will be buying and holding for 40+ years!

So, investing properly, in a non-speculative way, is the key. There are plenty of other ways to increase wealth.

Yet the key thing is a good, risk-adjusted, return. It is true that you can make 10x as much from running your own business as investing in stocks, or even more for a small percentage of people.

Yet most people don’t and the risks are much higher. For me, the stock market doesn’t offer a great risk-adjusted return if you just want to invest for a few years.

Over a five or six year period, the risk-adjusted returns are usually OK or good.

If you can be very long-term, the risk-adjusted returns are usually excellent compared to other assets, especially if they can be held in conjunction with other assets.

These kinds of attitudes which imply that investing in stocks is only for the rich are only now gradually changing.

What is interesting is that younger generations are less likely to believe that now it is easier to invest small amounts of money, which is good to see.

How can you look rich without spending money?

Source: Quora

I wouldn’t worry about it because:

  • We can’t control what other people think about us
  • People have different ideas about what the wealthy or rich look like
  • Nobody cares in any case as per the quote below….apart from maybe your parents, best friend etc.
main qimg 462ae2eb6ab4cbadc72bb4393e1b9949

For the second people, about people having different ideas about what “the rich” look like, there are basically two kinds of people:

  1. Those who think rich = wealthy and that = spending loads of money and being fancy. Those people will never be convinced that you are rich, or wealthy, if you don’t spend loads of money unless you actually show them your financial records! They have watched too many movies and media coverage and put all wealthy people into one generalised basket.
  2. Then there are those who realised that you shouldn’t judge a book by its cover, wealth and income aren’t the same thing and in fact many wealthy people can be pretty frugal. Those kinds of people will be open-minded to the idea that you might be wealthy regardless of how you look. I guess if you retire young but act “normal” more people will know you must have done OK to allow that to happen.

Saying that, there is a difference between developed and developing countries.

In many developing countries I lived in as an expat, even genuinely wealthy people cared about showing off.

This is natural when it is “new money”. In most old rich countries and cities, there is an inverse snobbery.

In other words, plenty of old rich and middle-class people will look down on people who show off too much.

Personally, I don’t care if somebody shows off or not, provided they don’t affect me.

Yet having read the stats many times, I am less likely to think somebody like that is wealthy than somebody who is more low-key.

One reason for this is also rational. If you are doing well, it is best to not show other people how well you are doing, because more people will copy.

What are the most undervalued investments right now?

Source: Quora

It is hard to tell, in advance, which investments are incredibly undervalued.

If you look at this from a price:earnings basis and other traditional ways to evaluate the question, the following investments look undervalued:

  • The FTSE100 as a whole.
  • Small/mid caps in many countries
  • China, Nigeria and some emerging markets including Russia, Pakistan and others.
  • The financials in Europe
  • Maybe some forms of real estate and REITS.
  • Value in general over growth stocks.

Yet remember that markets aren’t always efficient, but they aren’t stupid either.

The market is hundreds of millions of people and trillions of USD.

If the US looks expensive relative to Nigeria or China that is because the markets have factored in the risk.

If it was so easy to google “ETFs with the lowest P/E ratios” then everybody would do it and beat the S&P500 and other major markets.

I have lost count of the number of people who have tried to switch which ETFs they pay based on this kind of analysis.

Plenty bought the UK and European markets back in 2016 when US markets looked overvalued in comparison.

Since then, the US has continued to outperform. It won’t last forever but the aforementioned point shows there are many variables in investing.

Analysis on profitability is only one such variable. Investing isn’t like physics or chemistry.

We know from history that markets can outperform, or underperform, at some of the most unexpected times.

I don’t know anybody who back in March 2020 thought markets would come back so quickly.

That makes diversification and long-term thinking important.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 240.3 million answers views on Quora.com and a widely sold book on Amazon

Further Reading

In the answers below, taken from my online Quora answers, I speak about:

  • Why would you invest in bonds? It pays so little. At least that is what some people say. I explain why you shouldn’t expect low returns for bonds forever.
  • What is hedonistic adaptation and how can you avoid it? I look at the relationship between money and happiness, and how you can increase happiness by making the right choices.
  • What is the best financial advice you could probably be given?

To read more click on the link below:

I was asked “why would you invest in bonds? It pays so little”. Here is my response.

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