We know from your feedback that you’ve profited handsomely from the tech-stock recommendations we’ve shared during our twice-weekly conversations here at Strategic Tech Investor.
But our goal here isn’t just to help you make money in tech.
We also want to teach you how to make it.
So today I’d like to do two things. First, I want to thank you all for taking the time to contact me with your questions and also for sharing some of your own personal experiences. This is deeply gratifying.
So let’s get started – with one of the questions I get most frequently. It goes something like this:
Question (Q): Michael, you’re recommending some expensive stocks. I’m just getting started and have a small portfolio. I can’t afford something that costs more than $100 a share. Can’t you tell me about something cheaper?
Answer (A): As a long-time investor, I certainly understand and appreciate this sentiment. At heart, all of us are to some extent price sensitive. If we weren’t, we’d all have a Mercedes Benz parked in the driveway.
Let me explain something. Investing in tech stocks – in all stocks, for that matter, is all about balancing risk with reward and maximizing your returns. Sometimes, that will involve a low-priced stock. But quite often … it won’t.
Instead of focusing on price, it literally pays to keep your eye on the rate of return. Take the case of Google Inc. (NasdaqGS: GOOG). We spoke about that stock back on June 25 when it was trading at $866.20 a share. Since then it has returned just shy of 41% and now trades at $1,220. And I still see a lot of upside for this dominant tech player.
Remember, a 40% return on a $5,000 investment is a $2,000 profit – whether you’ve invested in a $20 stock or a $100 stock.
A well-balanced portfolio will have a blend of three approaches – foundational plays like big caps and exchange-traded funds (ETFs), strategic-growth stocks and what I call “special- situation” plays. Those last two can include lower-priced stocks.
Last May 7, I suggested you buy tiny biotech firm Repligen Corp. (NasdaqGS: RGEN), which was then trading at less than $10. This was the rare low-priced company that met all five of my rigorous tech investing rules. Since then it’s up roughly 77%.
That brings us to our Jan. 21 talk, where I recapped some of the big winners we’ve had over the last several months.
(Q): I’ve been a subscriber since around August of last year and I bought shares of Adept Technology Inc. (NasdaqCM: ADEP) when you recommended them the second time in September. I am very grateful for helping me more than double my investment. Looking forward to a great 2014. ~ Alfonso C.
(A): This is why I love my job so much. I like to remind folks that the road to wealth is paved with tech and that if they use my rules-based system regularly they can achieve life-changing gains. That’s what Strategic Tech Investor is all about.
In my Jan. 24 column, we talked about the importance of ultra-high-definition TV (UHDTV), which has roughly four times the resolution of today’s HDTV monitors.
(Q): Is this idea going the way of 3D sets? I have a 3D set. The picture is great, much better than my other sets. However, I have watched something in 3D probably three times in the past three years. ~ Miles R.
(A): Miles, your question cuts to the heart of what makes tech investing so challenging for a lot of folks. Truth be told, there’s an awful lot of high-tech hype out there. And that’s why I like to remind you of Tech Wealth Investing Rule No. 2: Separate the Signal From the Noise.
I vividly recall all the industry hoopla when 3D first debuted for the home market … and thinking to myself: “This is never going to fly .”
On that point, I was right. I mean, who wants to worry about putting on those silly glasses to watch TV. It’s hard enough to remember where you put the remote control.
But UHDTV (also called 4K) is different. It’s a real breakthrough – one that will affect the market for years to come. The entire industry is headed that way because the image quality is, well, breathtaking. And companies like Netflix Inc. (Nasdaq: NFLX) are already creating 4K content to fill the pipes.
Here’s a fact that almost no other tech investing analyst out there is discussing. Apple Inc. (NasdaqGS: AAPL) recently launched its flagship desktop Mac Pro computer. That machine is optimized to handle the intense rigors of 4K editing. In other words, UHDTV is already becoming the industry standard.
That same column drew a question about one of the 4K stocks I mentioned, Ambarella Inc. (Nasdaq: AMBA).
(Q): AMBA is still up 80% since I bought it, even though it has gone down about 20%. You still think it’s going to go up? ~ Anthony B.
(A): Anthony makes a great point. Shortly after that column appeared Ambarella took a hit when an analyst (mistakenly, I believe) downgraded the stock. Knowing Ambarella as well as I do, it was difficult to see an analyst perform such a great disservice to an outstanding stock – and to all the investors who held it.
On the other hand, I did expect it to recover. And that’s just what’s occurred. It has regained all that ground and is now up 4.23% since that column appeared.
And I still see plenty of upside for this leader in video-processing chips.
I spent quite a bit of time discussing the potential for Ericsson (NasdaqGS: ERIC), the Swedish telecom giant that’s also involved in UHDTV broadcast technology. Since that column appeared, the stock is up nearly 8%.
On Feb. 19, I told you about the profit opportunities we had ferretted out as a result of the rash of recent cancelled flights.
(Q): Why recommend United Technologies (NYSE: UTX) when the Army is cutting helicopters and telling the National Guard to do the same? ~ Richard
(A): First of all, that column specifically dealt with what is both an intriguing and profitable ETF – the iShares U.S. Aerospace & Defense Fund (NYSE: ITA). It’s a great way to play the historic commercial aviation boom that we’re seeing right now.
United Technologies isn’t just about the military. And it’s just one of several stocks in the ETF’s portfolio. I mentioned it because the firm has great technology, has decades of experience and is well run.
I said at the outset that part of my objective here is to teach you how to make money as a tech investor.
And there are two important lessons here.
And they both have to do with managing risk.
Bill Patalon, the executive editor here at Money Map Press – and one of my frequent collaborators – likes to say that during his 30 years in journalism, he learned that “all companies have warts.”
I like that. What Bill means is that there’s no such thing as a perfect company, or a perfect stock. And he’s right. That’s the first of the two points I want to make here: If you look hard enough, you’ll find that every single company has “issues.” It might be patent suits, shareholder actions, product recalls, product failures, patent expirations, ousted executives, an up-and-coming rival, foreign competition, a dead-weight division … you name it, we’ve seen it. Every company has challenges to deal with.
If the “warts” are known, it’s usually priced into the stock. The key is to make sure that you’re paying a fair price – and that there aren’t any warts you don’t know about … because you never want to be surprised.
With a company like United Technologies, the budget issues are already known – and are priced into the shares.
Over the past year, UTX has gained 29.9%, versus 23.26% for the Standard & Poor’s 500 Index -or 25% more than the overall market.
In other words, if UTX’s future is as uncertain as some investors think, then why does it continue to beat the market?
That brings us to our second point: If there’s a sector you like, but some of the companies worry you, then “spread the risk” by investing in an ETF. By definition, the point of acquiring an exchange-traded fund is to own a group of leaders at a fraction of the cost – and risk – of buying them individually. As a matter of fact, UTX is a great example: It’s in the ETF I recommended.
Managing risk is an important component of any investor’s success. You have risk handled, you can sleep at night. And when you can sleep at night, the odds are stronger than you won’t panic and will get into the “long run” with your investments – which is where the biggest money is usually made.
On Feb. 21, I discussed my “Sominex “ strategy designed to help make you more money and sleep better at night.
I hope that you’re starting to see how all the things that we talk about here are coming together …
(Q): Michael, I have to tell you … I luv, luv, luv the “free-trade” strategy – where you tell folks who have a “double” to sell half – and then let the rest ride (play from there with the “house’s money “). In the past I would stay in a stock too long. Now I have a goal and do get out immediately (most of the time) when the stock doubles. At times, I’ll admit, the “greed factor ” still gets the best of me. ~ Florence L.
(A): In case you case you missed that column, Florence is referring to my strategy of selling half a stock once it doubles. The idea is to recoup your original investment and then “play on the house’s money” as I like to say.
One of the things I have learned over many years as a tech investor is to have a set of rules and stick to them. You make a lot more money in the long run by being focused, disciplined and consistent than you will by chasing fads or other hot stock tips.
Having said that, we’re to some extent still all like Florence in that the “greed” never goes completely away. Just last week, for my trading service Radical Technology Profits I decided to take some gains off the table after one of our stocks soared by more than 25% in a single day.
To persuade myself to make that recommendation, I literally stopped what I was doing, took a deep breath and reminded myself “don’t get greedy.”
In other words, don’t try to get rich overnight. Remember, you make the most money by focusing on a key set of principles and strategies and by investing for the long haul.
Once again, I want to acknowledge the many readers who take the time to follow this service carefully and post their insightful comments.
Strategic Tech Investor couldn’t be a success without all your great support.
I thank you for joining our conversations. I thank you for your comments.
And I’ll look forward to seeing you back here later this week.
[Editor’s Note: As you can see from today’s report, Michael reads your comments and likes to answer your questions. He’s already starting to gather questions for his next reader-interaction column. So please post comments and questions here.]