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Michael Answers Your Tech-Investing Questions

16 | By Michael A. Robinson

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.

And, second, I’d like to address some of the investing questions I’ve received of late.

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.]

16 Responses to Michael Answers Your Tech-Investing Questions

  1. Don Schraier says:

    We have money to invest in IPOs and can’t find anywhere to buy them. Are these available only to institutional investors?

    • William Patalon III says:

      Dear Dan:

      You actually did a super job answering your own question. You’re pretty much correct: The best IPO deals can be very difficult for individual investors to get into — without having to buy them in the aftermarket. Sometimes, if you have a special rapport with a broker, you might be able to get some, but it is very difficult for retail investors to access the truly “hot” IPOs.

      In a Strategic Tech Investor column in July (I posted the link below … you can copy and paste it into your browser), Michael detailed this very situation. And he provided an alternative — kind of a “back door” play into this “rich man’s IPO market.”

      It’s the First Trust IPOX-100 Index ETF (NYSEARCA:FPX), which has a clever IPO-investing strategy. Michael details the ETF’s strategy in that column. So take a look, consider your own personal objectives and risk profile before making any investing decision, and see if it suits you.

      One thing: The ETF is up 42% over the past year and 286% over the past five years, according to Google Finance.

      I covered this in my own newsletter, Private Briefing; in an interview, Michael told me:

      “Bill, I can almost hear your readers saying: ‘Ugh, another ETF? After all that buildup?’ But I’m telling you: This is a very special investment that not many folks seem to know about,’ he said during a recent chat. “Truth be told, it’s actually a terrific way to profit from the hot IPO market we’re seeing right now. First and foremost, you don’t have to be an insider. You don’t have to worry about emotions leading to bad decision-making – you know, all the contingencies I outline in my rules. And, best of all, the FPX is an absolute market-beater: It’s already up 42% over the past year, nearly double the (23.4%) return of the Standard & Poor’s 500 Index.”

      As I said, you need to evaluate this for yourself, to see if it’s something you can live with (and sleep at night with). Remember, the higher the returns, generally speaking, the higher the risk that accompanies them. So do your own “due diligence.”

      Hope this helps …

      Respectfully;

      Willliam Patalon III
      Executive Editor/Editorial Director
      Money Morning and Private Briefing

      P.S. As promised, here’s the link to Michael’s original column on IPOs:

      XXXXXXX

  2. jeff forcier says:

    Michael I am self employed. I am still bleeding from a huge hit in 08. I lost half of everything in the stock market and the rest in real estate. I have no way to retire now. I am 58. I have about $6000.00 to invest. I need to be careful how to invest this. What are you recommendations. jeff

  3. mark vigario says:

    Thank you for the tip on Skyworks; it ha performed with a 15% increase in just three weeks. My sincere thanks. Like you I believe IBB is a long term winner.

  4. Cheryl says:

    Hello Michael, I recently joined strategic tech investors group and for the first time since 2008 I am gaining verses losing. Thank you! Question #1…because I am new, should I go back and buy previous stocks you suggested or continue to buy what you suggest moving forward? Question #2…when a buy is suggested will it tell us whether to buy with a “stop loss” or “trailing stop loss”? Wanted to clarify.

    Thank you for turning my portfolio around in the correct direction…gaining!

    • William Patalon III says:

      Dear Cheryl:

      These are both superb questions — and the fact that you’re asking underscores that you’re putting a lot of thought into your investment strategies. That’s one of the most important things you can do to give yourself the best chances for success.

      Because we wanted to get you answers immediately, and because Michael was “out of pocket” today, I am pinch-hitting for him here.

      As for your first question, if you go back to past recommendations, it might be best not to go back too far. Some of the more recent ones are still worth a look. Make sure that they fit your risk profile, and that the prices haven’t advanced too much above where they were when Michael wrote about them. Given the number of winners he’s predicted here, that’s a step worth taking. We’ve seen a number of his recommendations soar in price following his writeup. So do the research.

      For your second question, because this is a free service, we don’t actually run a formal “portfolio.” And that means that, with Strategic Tech Investor, we don’t issue real-time sell “alerts.” Michael operates two other services — both of which are subscription-based. One is the Nova-X Report, and the other is the Radical Technology Profits Alert. They’re both excellent and could provide the extra level of service that you seek. Nova-X is not at all cost prohibitive. (I’m not trying to sell anything here — as the executive editor, I’m a “content” guy, not a marketer. I just wanted to alert you to some other available offerings.)

      I hope those answer your questions. If not, please don’t hesitate to drop us a note … or post new queries at the end of Michael’s latest column. We’ll gladly get you some answers.

      Respectfully yours;

      William Patalon III
      Executive Editor/Editorial Director
      Money Map Press LLC

  5. Roy says:

    Michael, I recently bought DDD as you recommended and have since seen numerous articles indicating the 3 biggest 3D companies have a bigger combined market cap than the forecasted $10B revenue of this market several years from now. How do you react to such comments and rationalize continuing to hold this investment.

    • William Patalon III says:

      Dear Roy:

      In writing, we would this “mixing your metaphors.” I’m being a bit humorous here, but only to make a point, because I think you’re making a bit of an apples-and-oranges mistake here.

      Market caps and revenues often have this type of relationship. I mean, Apple had $171 billion in revenue in fiscal 2013, but has a current market cap of about $475 billion. Google had $58 billion in its last fiscal year, but has a current market value of $409 billion.

      Google boasts a higher growth rate than Apple (whose business has matured), which is why there’s a bigger disparity between revenue and market value.

      We would argue that those aren’t really the metrics you should be focusing on the most. It’s obviously a complex topic and one that could take up lots of time and space to get into. But given the tight confines of this venue, allow me to perhaps oversimplify this a bit and at least get you started looking in the right areas.

      What you really need to be looking at are things like projected earnings, earnings growth, valuations and overall market growth. Remember, stocks are discounting mechanisms … the higher the growth potential of a particular market — in this case, 3D printing — and the higher the projected growth rates of the companies themselves. All other things being equal (“ceteris paribus” as my econ professor used to say to us), the companies in the markets with the highest forecasted rates of growth are going to command the highest valuations. In markets as new as this one — so new, in fact, that the market and the uses for this technology are being “invented” as we go along — there are obviously a lot of assumptions being made. But you’ll often see smallish-but-fast-growing companies commanding fairly hefty market values, simply because the expectations for growth are so high.

      I hope that gives you at least a partial answer to your question. Again, I was trying to oversimplify in order to give you the fullest possible answer in the confines of this space. But feel free to follow up with additional queries. We love to hear from you.

      Respectfully yours;

      William Patalon III
      Executive Editor/Editorial Director
      Money Map Press LLC

  6. Chuck Wertalik says:

    Michael, thanx for the updates on Ericsson and Ambarella. I was somewhat disheartened by the downturns on these stocks and was considering dumping ’em IF they got back into “plus” territory. But in the back of my mind (struggling with the cobwebs) was the realization that YOU had recommended them, and I didn’t feel you’d lead us astray, and then – VOILA! – they started to rise, and here you are with the explanation! You DEFINITELY de man! THANKYEW! – Chuck W.

  7. Tony H. says:

    Every time I touch a stock it takes a dive. I thought I did great “due diligence” on my last one, so I thought I might get your opinion about LQMT. Seems like they might be a play since they do own some patents. what are your thoughts ?

  8. Jim Arnold says:

    Recently, you wrote about GFOX. Since then, it has gone up and now gone down lower than I bought. What is your recommendation now?
    Thanks

  9. Eric F says:

    I am really just starting out in all of this. With regards to the basic purchasing of stocks, is it best to do with a broker, or some on line companies like E-trade, Scott-trade, Charles Schwab etc?
    Recommendations please.

  10. Bonnie Davis says:

    There are interesting cryptocurrencies other than Bitcoin. Do you like any of those? NXT especially appeals to me because of it’s protocol ( as best I understand it). Possibilities here? My thanks for your thorough intro to Bitcoin.

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