A Tech Crash Could Wipe Out Rookie Investors

Editor's Views: New investors may be in for a shock if the tech boom turns to bust, the pros and cons of stock splits and why you should keep your eyes open on staycation

Holly Black 28 August, 2020 | 10:37AM
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This week we heard from an investor whose share portfolio has made him more money than he’s earned from his job over the past four years. If this guy is as talented as he seems at picking shares, maybe he should consider a change in career.

Seriously though, this is admirable stuff and really the ideal start for any investor. Because while Damian has had a few slip-ups along the way, he’s achieved performance that most fund managers can only dream of. I hope his run of success means that should he ever go through a bad patch, he has the confidence to stick it out and keep going.

Recent months have probably got a lot of people thinking about investing who might not have considered it before. With Apple hitting a $2 trillion dollar valuation and tech shares soaring, it’s no wonder that many an imagination has been captured.

But those newcomers to the stock market who have dipped a toe in for the first time this year are, I fear, in for a rude awakening. Because nothing goes up forever, particularly when you buy after such a surge. And those investors who have a bad experience, who lose money, in their first attempt are unlikely to try again. And where does that leave them? With rising inflation and savings accounts paying 0.5%.

So yes, be inspired by Damian’s tale. But, as I’ve said a number of times recently, remember there is more to the world than US tech shares.

Buffett's Not a Splitter

Speaking of US tech giants – this coming Monday, the stock splits of Tesla and Apple will take place. We’ve put together a useful explainer here if you’re wondering what that means and how it might affect you. Spoiler alert: it doesn’t really.

Share splits can make it easier for individuals to invest in a company’s stock, especially if the price has skyrocketed, as it has with these two behemoths. A fun way to spot a stock split is when you’re looking at company’s share price chart and notice a massive, seemingly random plunge in the line. This year, to be fair, that could’ve been pandemic-related but often it’s a tell-tale sign that a split took place.

What I find interesting though, is the companies which choose not to undergo a share split. Warren Buffett’s Berkshire Hathaway is a perfect example of this. A great number of investors completely idolise Buffett and he is the reason that many people even decide to start investing in the first place. Want a share in his company, though? It’s going to cost you more than $325,000! That’s about £245,000 - more than the average UK house price. So, you could either own a tiny fragment of an investment legend, or own the roof over your head.

It's an interesting comparison when you consider the many people who say a house is the best investment you'll ever make (I’ll not get started on the fact that something is not an investment when you can’t sell it because you need somewhere to live) but perhaps this comparison puts paid to that: if you’d have bought a Berkshire Hathaway share in 1990 at $7,000 your money would have grown more than 46 times over to $325,000 today. In 1990, the average UK house price was around £59,000 according to Government data. So while that’s grown more than fourfold to today’s value, it’s no Buffett, is it?

Investing Ideas Are Everywhere

Looking out of my window at a grey, drizzly sky I can’t help but think we’re in for a very typically British bank holiday weekend. I can’t feel too bothered about it to be honest, we’ve had an incredible run of weather this summer. But I do feel bad for anyone heading off into the Bank Holiday rush on their staycation.

Because this year, jetting off to sunnier shores is plainly not an option for the majority of holidaymakers. And while that may be sad news for your swimsuit, which might not see the light of day this year, it could well be a boon for British businesses.

We got to thinking about staycation stocks this week, those companies best poised to benefit from the trend of travelling more locally. Whitbread (WTB), with its 800-odd hotels across the UK is an obvious beneficiary, as is casino-operator Rank Group (RNK). And what about JD Sports (JD.)? The GO Outdoors and Blacks chains it owns could well see a surge in anorak sales this weekend if the forecast is anything to go by.

So, if you are heading off on your holidays - firstly, have a nice time - but also keep an eye out for investment opportunities. Perhaps the gin you order will come with a Fevertree (FEVR) tonic, or you’ll stop off in a service station and stock up on magazines and books at a WH Smiths (SMWH) outlet. You might even use the National Express-operated (NEX) local bus service at your destination. If you’re using these businesses, so are other people, and that could be an opportunity.

So, yes, you might be more excited about a pint in a country pub and relaxing with a nice book right now, but remember, you never know when investment inspiration might strike.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Holly Black  is Senior Editor, Morningstar.co.uk


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