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Tech has been booming. As of date of writing this article tech ETF QQQ is up 24.79% over 1 year. Over last five years it is up 102.88%. Is this sustainable?
Siddharth Lunawat
5/8/20242 min read
Tech insights blog
Tech stocks have been unstoppable. QQQ, the premier Nasdaq-100 ETF, is up ~25% in the last year and nearly 103% over the last five years! Those numbers make me wonder are we in the bubble territory?
I, Siddharth Lunawat, honestly don't know if we are in a bubble but I do know the tech boom is real. Tech has been dominating since Microsoft and Apple came out and it will continue to dominate but it's not invincible.
The long-term drivers are undeniable. NVDIA's chips are powering the new AI age. The mega-cap players such as Apple, Meta, Microsoft and Amazon have fortress-like balance sheets. Every business is adapting to digital transformation, even pest control companies are using AI to answer calls. In the long run technology is inevitable.
Here’s the problem: everyone is piling into the same trade. QQQ and meg-caps are driving most of the performance in tech market cap. This creative massive concentration risk. If even or or two of these gians tumble the whole industry will feel the shock. At one point GE was the dominant tech company with electricity, refrigerators etc and they tumbled, similarly these tech companies could as well.
So how do you account for this risk? Let's say you started investing in 2020 with $100K then you would have $281K today. In this strategy you are banking on QQQ going up. Instead if you bought 50K in QQQ then started buying QQQ again when it started dipping you would have $313K today. Since you can't really time the bottom you just start buying whenever there was a 2.5% dip and keep buying as it dipped more. You would not always end up having more than just buy and hold but the buy and cash strategy lets you hedge your bet a little while sometimes enabling you to capture even more upside.
Final Opinion: The best way to ride the future of innovation is tech and especially QQQ. My recommendation is to still hedge your bet a be ready for a rainy day. Pair it with some cash / treasury strategy and then deploy more during dips.