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Tech stocks and the greater fool theory
It doesn't matter whether it's value stocks, growth stocks, or tech stocks, the risk of investing in the stock market often comes from not knowing what stocks to buy.
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App battle: Gojek, Grab, Airasia, Shopee and Traveloka are among some technology companies aiming to become super apps. (JP//Eisya Eloksari)
Based on the concept of valuation, there are several different types of stock investments. It was Warren Buffet who first coined the term “value stocks” back in 1992.
When buying stocks, you should take time to closely examine their fundamental aspects, such as financial performance, industry prospects, dividends, earnings, profits, company vision and management quality. If the value of the stock is still below its fundamental value, then you are purchasing what are known as value stocks.
There are other types of stocks as well. Prices still reflect the fundamental aspects. Picture a company with a bright prospect that is unfortunately still burning cash. It has a good “story” and its revenue growth is faster than the industry average. It is only a matter of time before it turns a profit and pays dividends to shareholders. If you buy these stocks, you are investing in growth stocks.
When it comes to investing in tech companies, another fairly popular term springs to mind. If you purchase stocks without considering their fundamental aspects: The company is still bleeding money, but you believe in the “story” and the impact it would bring in the future, then you are investing in tech stocks – which are in essence growth stocks.
Retail investors, especially beginners, tend to want to make profits as quickly as possible. They usually do not care what kind of stock they buy. Rumors, trends and analysis easily influence their decision to buy stocks. As a result, they lose money instead of earning profits.
Here is where savviness in stock purchasing comes into play. It does not matter whether they are value stocks, growth stocks or tech stocks, the risk of investing in the stock market often comes from not knowing what stocks to buy.
One popular investment advice is "don't put your eggs in one basket". A diversified stock portfolio will help reduce the chances of suffering concurrent losses. Does the advice guarantee success? Not necessarily.
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