knockknock wrote: ↑Wed Sep 16, 2020 1:02 pm
...I know this goes against the bogleheads way of investing and is considered performance chasing...
Good. Yes, it does and it is.
...but my thinking here is that tech has become an integral part of our lives and will only continue to become even more integral as we go forward.
When has this not been true? And when have people, particularly people buying stock, not realized it?
Anybody with common sense can tell when certain new area of opportunity have opened up, and present huge opportunities
... possibly even long-lasting change-the-world opportunities. But it is easy to make three mistakes.
- Supposing that these opportunities are so good that any competent business that is in that area is sure to do well, just because it is in the "right" kind of business.
- Not appreciating that everyone else can see what you see, and that's why the stocks have high price-to-earnings ratios.
- Forgetting that disruption is great for the successful disrupters, but fatal to the disrupted.
"Radio," i.e. the Radio Corporation of America (RCA) was the darling of 1929, and here is what its stock price did.
My point here is that RCA stock did that even though
RCA was an excellent company in an excellent area up to about 1980. Just because a company really is
a great company with a fantastic future doesn't make it safe. The same thing is true for industry groups and sectors. (Read about what happened with railroads in the late 1800s. Another truly-world-changing technology innovation, and a minefield for investors. The Pennsylvania Turnpike, the first modern highway, was literally built on the failure of a railroad--rails-to-trails, but with cars instead of bikes!)
As every new area opens up, it becomes populated with all kinds of businesses. Some are close to outright frauds that are created primarily to cash in on investor interest, and put more energy into creating the corporation and issuing and selling the stock than in engaging in the business they are supposed to be in. Some have the right technology but can't figure out how to make, market, and sell the product (Xerox corporation's fumbling of the work at Xerox PARC, which invented all the key elements of personal computing as we know it). Dozens perfectly credible companies that are in the business and really building cars or growing pot or whatnot, but don't have the competitive business smarts to survive the shakeout, etc.
You don't automatically get better investment results by focussing on something that everyone can see looks generally good, whether it be individual companies or whole sectors. Focussing increases risk, diversification reduces it, and improving results by focussing requires "being right" in a very specific, competitive
way. You can't win by outthinking me
. You have to outthink people with Bloomberg terminals who make their living out of following businesses all day every day.
Another thing you are missing is how quickly and viciously some change can come out of the blue and bite whole industry groups and sectors all at once. The same technology changes kill businesses almost as quickly as they create them. It is almost impossible for younger people to appreciate just how big and mighty Pan Am, TWA, and Eastern Airlines were--yet airline deregulation in 1978 basically killed them all off. It wasn't obvious in the crystal ball that these mighty companies couldn't adapt--but they didn't. The first desktop microcomputer-as-we-know-it, the Altair, was introduced in 1975, and within about fifteen years microcomputer chips killed off the minicomputer companies and severely damaged the mainframes. (And, dare I say "of course," the Altair and the company that created it, MITS, the company that created the Altair, MITS, didn't succeed, either).
So Apple succeeds, and if you'd had it in your portfolio and had stuck with it through several near-death moments, you would have course made money on Apple, but at the same time you'd have been losing money on the failed companies (Osborne, Tandy Radio Shack, Atari, Commodore) and the killed-off-and-crippled previous technology generation (Digital Equipment Corporation, Wang Laboratories, Data General).
Broad, clear, established definitions like "tech" don't magically include the real disruptive winners, and don't magically exclude the real disrupted losers. (I feel quite sure that new, narrow definitions of e.g. "exponential" industries won't do it, either).
I plan to do this over the next 25 years. I am sure there will be recessions during this time frame but I am unable to get a good grasp on how risky my plan is and what I have at stake here. Your opinions are quite appreciated
What you have at stake here is that you are increasing your risk noticeably, and almost certainly without increasing your expected return. A more serious risk is the risk that betting your whole retirement on a single sector exceeds your risk tolerance, and that you don't know it yet, and that at some point you will encounter a tech downturn so serious that you sell into the downturn--even though you feel sure today that you would never do a thing like that. Two acquaintances of mine who were 100% stocks or close did that in late 2008. I had a very conservative allocation and I don't like to think just how close I came to doing it, too.
Furthermore, even over periods of 25 years, the risks of the whole stock market are quite appreciable, and the consequences for retirement savings if you start at the beginning of a bad 25 years are bad enough
. For example, over the period 1957-1981 inclusive, the real return of the stock market averaged only 2.78% per year.
I don't know how to easily find similar data for sectors--tricky because sector definitions shift that the "standard" GICS classification only began in 1999.
This chart I found with a web search looks right (though I can't vouch for its accuracy). Take a look at it.
You are taking exactly the wrong lesson from this if you if say "I was right, but I just had the wrong sector." Please don't do that. The point is that things are just not as simple as you think, and that according to this chart, over the last forty years concentration in the tech sector definitely would have increased downside risk--but would have had lower
average return, not
(I added the circle and arrows because the color coding wasn't very clear. A table lower in the article helped me figure out which was which).