We recently covered the subject of rising US stock markets and the fact that the vast majority of recent increases have revolved around the technology sector. The likes of Amazon, Google, Apple and Microsoft have performed extremely well. This then begs the question, if the most activity, on the upside and eventually on the downside, relates to technology shares are they the only shares for traders?
Growth potential
While technology shares tend to grab the headlines with regards to growth potential, this is not always the case. The fact is that any sector can encounter a period of significant growth which in itself should be enough to make traders sit up and listen. For example the banking sector undertook a period when mergers and acquisitions were prevalent, pharmaceutical companies often come up with groundbreaking drugs and treatments to name but two areas. So, while technology companies may grab the headlines, and have potential for enormous growth, they are not the only growth sectors in town.
Jam tomorrow
One of the main problems for the technology sector, as we have seen with Snapchat, is the fact that much of the growth is scheduled to happen much further down the line. In effect this “jam tomorrow” phenomenon continues to pull in investors who are happy to take a stake today in the hope that momentum will continue forward. The problem is that as and when markets do hit a period of volatility the first companies to suffer are the non-profitable or low profit making technology companies. In simple terms, investors will often be tempted to bank a profit at the first sign of trouble which will rein in these often skyhigh valuations.
Long-term investors
There is nothing wrong with short to medium term trading, at the end of the day a profit is a profit, but long-term investors in the “right” companies can make serious money. We only need to look at the likes of Apple, Google and Amazon to see companies which literally came from nowhere, encountered criticism, and became the leading lights of the online arena. Indeed we have Amazon hitting $1000 a share recently, Apple going from strength to strength and Google seemingly teflon like after recent criticism of the company’s advertising services.
In the early days these companies attracted long-term investors who ignored short-term issues so long as the long-term picture remained intact. Obviously, this is not short-term trading and will lock up money for a potentially long period of time.
Mixing your investments
If you are a short-term trader and you do manage to make a significant profit why not look at mixing your investments between short-term and long-term opportunities. Why not start tucking away a few of the growth companies of the future, the Apple, Google and Amazon of tomorrow, and build up your portfolio. As long as the long-term situation remains intact, and you are able to see past the short term issues as and when they arise, surely this makes sense?
However, in many cases a trader is a trader and they live and breathe short-term well researched companies. At the end the day if it works for you then why change?