Technology Sector - Investing in Tech Stocks and Mutual Funds

Of all the stock market sectors, technology stocks are the most profitable yet riskiest stocks on the market. Unlike other sectors, large technology stocks are much more likely to crash and burn or even show off amazing growth depending in a very short amount of time.

Right now, the biggest example of this is Apple, which despite being a very large company grew to being one of the largest in the world in just a few years thanks to its iPhone and iPad products.

Technology stocks are volatile because new technologies often have very high profit margins. For example, Apple is able to sell its iPad for $499-$850, where it doesn?t cost them anywhere near that much in order to create the device.

One thing with even higher profit margins is software. Once created, software has no real cost to distribute, allowing its producers to be very, very profitable.

How to Invest in Technology Stocks

Technology stocks are driven by the success of their products. The easiest way to profit off of these companies are to find companies in emerging technologies (which are going to stick around) and invest in the best two companies in that space.

For example, one emerging technology at the moment (this article was written in 2011) is cloud computing. It is starting to catch on and businesses are starting to catch on to how powerful it can be.

At a basic level, cloud computing allows you to host a website, file, or project on many different computers at once, which makes loading times very fast and accounts for bandwidth spikes. An example of the usefulness is if a small-time webmaster has a blog post go viral, his web-hosting account won?t crash on the cloud as it will just draw on other computers in the cloud for support.

That of course is a basic explanation, but websites which load much faster and sites that can handle the viral nature of web 2.0 (the social internet) are certainly an improvement and will be widely adapted over time.

This means that whichever company (or companies) which ?win? in the cloud market space over the next 5 years are destined for big growth. You can pinpoint emerging technologies like this even earlier than this for bigger returns, but of course there is the chance that these technologies won?t be widely adopted.

Investing in Tech Stocks ? Advantages of Youth

While many industries are not recommended for new investors, the one industry where the new generation which is just learning how to invest has an advantage is in the technology space.

Why? Because most of the world?s wealth is held by older individuals (more years on the earth to work and invest naturally means more wealth), but many of these individuals simply do not understand technology. I am not joking either: Warren Buffet has explicitly stated that he will not invest in technology stocks because he does not understand the industry.

Young adults on the other hand have a much better eye for which technologies will take off and which ones will fall flat than older investors. New investors also have enough time to handle the risk of the technology market, making these stocks perfect for young investors.

Of course, you still have to analyze a company?s fundamentals and not let your personal opinion get in the way of your investment. For example, I do not think that the iPad is a good product ? it is far inferior to my $250 netbook which I am writing this article on right now.

However, my mom, who has not bought a new computer in many years, actually owns an iPad. Apple is able to sell older consumers who tend to shy away from new technology their over-priced products, and as a result, I think this stock is a good buy and has room to grow.

As an investor in technology stocks, when looking at a company which produces consumer goods, your question should not be whether a young person or computer geek would like this, but rather, how well would this product catch on in the 35 and over crowd?

The reason this is so important in technology stocks is because people in the 35 and over crowd are the ones putting money into these stocks. If you are a fresh college grad, you might think that Activision-Blizzard is 100 times better than EA, and that no games compare to Call of Duty, World of Warcraft, and Diablo, but the truth is most people who have enough money to influence stock prices do not know much about video game titles.

A result of this that despite Activision owning by far the largest subscription-based video game in the market and smashing sales records with each Call of Duty release as well as with Starcraft 2, their stock prices have remained relatively flat.

Investing in Technology Stock Mutual Funds

If you do not know much about the technology sector or the stocks inside of it, you may consider investing in technology mutual funds. Normally I am not a big fan of these, but these can be profitable if you buy at the right time.

There are two times you might want to buy into technology stock mutual funds. One is in late September time frame, particularly if the outlook is good for a big Christmas and holiday shopping season.

Tech stocks really tend to lag in the summer as it is not a good retail month, but come back strong for Christmas, particularly when companies post good results in Q4. If it is a good retail season, tech mutual funds will do nicely during this time.

The other time you might consider buying into technology mutual funds is if you think the market overall has hit a bottom. Tech stocks suffer significantly during a recession but also come back very strong when we reach the end of it.

This bounce-back can make a lot of money, as the NASDAQ moves much more than the Dow Jones. For example, the NASDAQ fell into the 1200s during the 2008 crash, and once saw a high of 5000 back in 2000, with the peak being a factor of nearly four times the bottom. By comparison, the Dow Jones fell has ranged from 7000 to around 14000 over the last 10 years (a factor of about 2).

However, fund managers do take some of the profits of a mutual fund, which makes them less appealing in my eyes (and those of many big investors) than picking out good companies yourself and holding on to them until you reach your target price.

Investing in tech stocks does have more risk than other stock market sectors, but the upside is also large as well. If you are a young investor, the technology market is a great place to invest in the stock market. It has more ups and downs than other sectors, but it also has tremendous upside over the long-term.

Source: http://www.how-to-invest.org/investing-in-tech-stocks-and-mutual-funds/

zanzibar arizona state university nsa fsi fsi dunkin donuts toy