Friday, July 10, 2015

Monocular Vision

When all you see is tech stocks, you might think they dominate the economy.

I am staying in a hotel in Atlanta, and they give you a "USA Today" every morning for free.  It was fascinating and horrifying to read, particularly the "Money" section, as it had a monocular view of the investment world.  It reminded me of a small child, looking through a cardboard tube and seeing nothing but Apple.

The articles were all about tech companies, which for some reason includes chip makers, computer makers, software companies, and Alibaba.   Really?  An online retailer is considered "tech"?

But it was fascinating to look at - sort of like slowing down at the scene of a bloody SUV accident.   The articles, if not about tech stocks, were about technology like NEST and OCULUS.   It was an advertisement for these companies and their products.

In the "America's Markets" section, they hype a service called "SigFig" and then gathering data from the site tell us what "we" are investing in.   Everyone, it seems is buying or holding Apple, and that is the single largest stock in their portfolio!  Everyone is selling Netflix - last year's tech darling.  And everyone is buying something called "Fitbit".

This is, of course, a horrific way to invest - putting all of your money into volatile tech stocks.  And yes, Apple could be a volatile stock, if its next product is not as successful as the previous.   It certainly isn't a horrible stock, but the single largest  stock in your portfolio?   Not a smart move.

It is stock-picking at its worst - trying to "get in on the ground floor" on "the next big thing!" and hope that the product is successful and the company you picked is the most successful selling that product.   But as we have discussed before, first to market is often last in the marketplace.  So even if you could identify a product as "the next big thing!" (for example, 3-D printing) you also have to successfully identify which company is going to be the successful company selling that product.   You have to make two consecutive bets here, like winning the trifecta.

But it made me realize why so many people lose so much money in the stock market and figure that it is "rigged."   They go to USA Today for financial advice and see nothing but chatter about tech stocks.  Nothing is mentioned about the health sector, energy sector, manufacturing sector, banking sector, or anything not tech-related.   Moreover, only stocks are talked about.   It is a very narrow view of the market.

This is not to say the tech sector is bad, only that it is not the entire market.  And if your whole portfolio is based on gambling on tech stocks, you could lose a huge chunk of your investment - if not all of it - if tech goes bust, which it does, on a regular basis.   About every five to ten years, in fact.

Diversify, diversify, diversify.   If you are invested in a panoply of things, you cannot "lose it all" on one bet on technology.

But to read the paper (and watch the cable channels) you might get the impression that investing in stocks consists solely of gambling on what the "next big thing" will be.