The epicenter of the economic crisis has largely been in\nservices, severely bruising industries like retail, hospitality, travel, food\nservices, and airlines. As these areas of the economy struggle to survive, many\ntechnology companies have been thriving. The economy has been steadily evolving\ninto \u2018digital everything,\u2019 and companies that build and\/or service the digital\ninfrastructure have seen rising demand. Many investors are noting this trend\nand flocking to companies at the forefront of enterprise cloud, remote work,\ne-commerce, cyber-security, and digital advertising. <\/p>\n\n\n\n
That\u2019s why I think now is a good time to urge caution. The\ngrowing enthusiasm among investors to rotate heavily into technology, in an\neffort to capture trends of the \u2018new economy,\u2019 comes with its own set of risks.\n<\/p>\n\n\n\n
For one, looking back to the 1990\u2019s offers some lessons to\nconsider. Take 1999, for instance, which was the apex of the technology bubble.\nPerhaps the biggest story of the year in the stock market was for a company\ncalled Xcelera.com, which was formerly known as Scandinavia. Never heard of it?\nThat\u2019s because today it is no longer a public company. <\/p>\n\n\n\n
A similar story that year was enthusiasm for a company\ncalled Commerce One, whose business model was focused on using online auctions\nto connect businesses with suppliers. When the company filed its IPO in 1999,\nthe stock shot up 190%.1<\/sup> It filed for bankruptcy four years later. <\/p>\n\n\n\n Still, there were other darlings of the tech bubble in 1999\nwhose businesses withstood the test of time. Qualcomm was one of the best\nperforming stocks in 1999, and remains a strong company to this day. The point\nI\u2019m making here is that rapid-fire growth in a sector like technology almost\nalways produces a set of winners and losers, with the losers usually far\noutnumbering the winners. For investors hoping to \u2018ride the wave\u2019 of\ndigitization in a post-Covid world, it is important to recognize that many\ncompanies in the emerging space will ultimately not do very well, or even\nsurvive. It is very difficult to predict who the winners will be. <\/p>\n\n\n\n _____________________________________________________________________________<\/p>\n\n\n\n Other Than Tech, What Sectors Should You Be Focusing On?<\/a><\/strong><\/p>\n\n\n\n While tech is flourishing, you should not forget the\nimportance of diversification. So, instead of narrowing in only on tech, I\nrecommend keeping your eye on other top sector picks. Our just-released stock\nmarket outlook report looks at Zacks S&P 500 top picks as well as other key\nfactors impacting the market today. <\/p>\n\n\n\n Our just-released Stock Market Outlook report\ncontains some of our key forecasts to consider such as:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 ____________________________________________________________________________<\/p>\n\n\n\n Another reason I would urge caution is that tailoring your\ninvestment strategy to the \u2018new economy\u2019 may mean chasing past performance\nand\/or over-concentrating your portfolio in one sector \u2013 two classic investment\nerrors, in my view. You have probably heard a thousand times that past\nperformance is not indicative of future returns, but it is an easy principle to\nforget when a category like technology has been outperforming so robustly and\nhas a solid growth outlook. Technology will not outperform forever. <\/p>\n\n\n\n Shifting a portfolio heavily into technology stocks may also\nmean sacrificing diversification in the process. Diversifying a portfolio helps\nreduce risk over time because you maintain exposure to uncorrelated assets \u2013\nwhen some sectors zig, others zag, and vice versa. Technology cannot continue\noutperforming indefinitely, and when leadership changes hands, which in my view\nis only a matter of time, it is important for investors to have some exposure\nto whatever category emerges as the new leader. That is not always possible\nwhen you\u2019re over-allocated to one sector. <\/p>\n\n\n\n Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n I am not urging caution in this column because I think the\ndigital evolution is a phase or a fad. I believe many of the accelerating\ntrends that we are seeing today, such as remote work, cloud, e-commerce, and\ndigital infrastructure, were already happening before Covid-19 arrived. The\npandemic is merely accelerating trends that were already underway. <\/p>\n\n\n\n I\u2019m urging caution because I think it is important for\ninvestors not to over-commit to these accelerating trends, particularly if doing\nso means over-concentrating your portfolio\u2019s allocation to one sector and compromising\nportfolio diversification in the process. <\/p>\n\n\n\n
IT’S FREE. Download the Just-Released August 2020 Stock Market Outlook<\/a>2<\/a><\/sup><\/strong><\/p>\n\n\n\n