A fair question to be asked. Undoubtedly, high-flying tech companies that are frequently in the news and have large followings are quite the rage. And yes, their volatility makes for opportunities for profit.
It’s a question of timing. In my view, buying stock for the purpose of selling at a higher price, regardless of the company, requires constant vigilance. Not only must on know when to buy, one also must also know when to sell. These are not simple determinations.
In addition, one needs to be aware of news about the company, to assess if the news is good or bad, and to determine if the news will affect the stock. Since I am not a trader, if any news is significant, many others will probably be ahead of me whenever I take action.
For me, I want a process that does not require me to maintain a high state of vigilance. I want to not need to constantly monitor my investments.
Dividends are much more stable than stock prices. The most frequent experience of dividends is stability and a slow increase. Yes, at times dividends are reduced or eliminated, but this is nowhere as common as price declines. For me, dividend investing allows me to sleep well at night.
No Dividends
Many tech companies do not pay dividends. Those that do have a relatively low yield. Since I am a dividend investor, I aim for dividend income, less than average dividend payout is unattractive.
The Truth Comes Out
While I don’t usually talk about what kinds of companies I avoid, there are some kinds of companies I prefer not to buy stock in. One is technology. While it often seems simple to see vibrant tech companies making money, and also stockholders doing well, having worked decades in technology, I can point to a constant race to avoid obsolescence. It is too easy to be today’s winner but tomorrow’s loser.
The Past
There are endless examples of companies that used to be the leaders in a field, that were then supersceded. The history of the automobile industry (another category I avoid) shows that at one time or another, there were more than 1,900 companies in the U.S. manufacturing automobiles. Picking the right ones at the right times would have been a difficult endeavor.
In 1900, the most predominant industry in the U.S. was railroads. Over 60% of the U.S. stock market capitalization in 1900 was for railroads. By 2000, that figure was less than 1%. The second largest industry group in 1900 was iron, coal, and steel manufacturing. which consisted of more than 6% of U.S. market capitalization. By 2000, it too was less than 1%. Data courtesy Investopedia.
Needless to day, in our lifetimes we have seen technology companies come and go. At one time, IBM was the predominant computer company. There was Sperry-Rand, Univac, Control Data, Digital Equipment Company, Prime, Wang, Data General, Osborne, Compaq, and so many others. All had their moments, and subsequently diminished. It is impossible to determine in advance which will thrive, and which will flounder. At some time in their life, each company has a good story. Then later, it becomes a story of former glory.
How Do You Avoid Future Has-Beens? Let me know here.
The illustration of a Peruvian thamnophilus melanchrous, a kind of ant-eating bird, is from “Proceedings of the Zoological Society of London for the year 1876.” Courtesy the Biodiversity Heritage Library at The Smithsonian Institution.
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