Why to not buy a tech fund?

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Jesteroftheswamp
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Why to not buy a tech fund?

Post by Jesteroftheswamp » Mon Dec 09, 2019 8:34 pm

Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?

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Steve Reading
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Re: Why to not buy a tech fund?

Post by Steve Reading » Mon Dec 09, 2019 8:39 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
What is your job/profession?

KlangFool
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Re: Why to not buy a tech fund?

Post by KlangFool » Mon Dec 09, 2019 8:42 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool

schooner
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Re: Why to not buy a tech fund?

Post by schooner » Mon Dec 09, 2019 8:47 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Imagine we were living in 1949. A lot of exciting things were going to happen in the airline industry. Jet technology was going to revolutionize air travel. Investing in the airline industry seemed like a no brained.

How would you have faired?

averagedude
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Re: Why to not buy a tech fund?

Post by averagedude » Mon Dec 09, 2019 8:48 pm

It's not a terrible idea, although it isn't for me and I wouldn't recommend it to anybody. If you feel strongly about it and you are willing to stick with it when (not if) it under performs, then go ahead and do it. I would suggest that you keep it at 10% or less. A tech fund is nothing but a sector fund, and alot of people on this forum invests in REITS (which is a sector fund), but thinks it is a bad idea to invest in a tech fund. Yea, they say REITS are less correlated to the overall stock market, but utilities are less correlated than REITS.

ARoseByAnyOtherName
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Re: Why to not buy a tech fund?

Post by ARoseByAnyOtherName » Mon Dec 09, 2019 8:51 pm

Stick with a total market fund. There is plenty of tech in the total market, especially when you look at the top companies by market cap. You really don’t need more weighting towards tech.

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Watty
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Re: Why to not buy a tech fund?

Post by Watty » Mon Dec 09, 2019 8:52 pm

Why to not buy a tech fund?
1) Unless you are doing insider trading you don't know anything that everyone else already knows.

2) Your index funds already own a lot of tech stocks, look at the list of their top holdings.

averagedude
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Re: Why to not buy a tech fund?

Post by averagedude » Mon Dec 09, 2019 8:53 pm

I would also like to point out, if your profession is in this area, it could be a bad idea to depend on the tech sector for your income and your investment returns.

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Brianmcg321
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Re: Why to not buy a tech fund?

Post by Brianmcg321 » Mon Dec 09, 2019 8:55 pm

I'm pretty sure nobody ever said that a tech fund would never go up.

That just wouldn't make sense.

They probably informed you of the added risk and cost that would be associated with it, and that holding an index holds all of those stocks also.

Maybe you are mis-remembering.
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Re: Why to not buy a tech fund?

Post by MotoTrojan » Mon Dec 09, 2019 9:29 pm

I prefer value too. Market weight has enough tech.

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Re: Why to not buy a tech fund?

Post by ScaledWheel » Mon Dec 09, 2019 9:31 pm

I'd argue that the truly high-growth tech companies are going to be ones not publicly traded, and their tech is going to make it into the operations of the companies in the SP500 anyway.

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Re: Why to not buy a tech fund?

Post by ARoseByAnyOtherName » Tue Dec 10, 2019 3:17 am

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.).
You're remembering wrong, what you were likely told was "don't buy tech funds because you will make so much money your brokerage will run out of 0's and will have to shut down because they won't have any money left for anyone else."

Can you point us to the specific thread where you told a tech fund will never go up? Was it one of these three that you started?

viewtopic.php?f=10&t=287269
viewtopic.php?f=1&t=283896
viewtopic.php?f=10&t=284061

TN_Boy
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Re: Why to not buy a tech fund?

Post by TN_Boy » Tue Dec 10, 2019 8:54 am

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Nobody told you tech funds will never go up. If you really think that was said, please re-read the threads in question; you are not understanding what people are telling you.

What people might have said is that there is no reason to assume that tech stocks will, in general, do better than other stocks.

Because you are not the only person (amazingly!) who is aware that tech companies do interesting things. This awareness by thousands (really millions) of market participants means that tech stocks generally have growth expectations *priced in already*. You should definitely understand the bit about expectations.

As a software engineer in the tech sector for many years, I will note that AI has been around for a really long time. Decades in fact. I will also say that some tech companies succeed and grow wildly. Some collapse and never make anybody money. Like other sectors (healthcare for example) sometimes tech will do well, sometimes not. You might look at the history of tech stocks during the period of oh, 1995 to 2005.

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Re: Why to not buy a tech fund?

Post by Jack FFR1846 » Tue Dec 10, 2019 9:16 am

I'm sorry, but AI and machine vision, machine learning has been around for at least 25 years. I've been technical support for parts that go into these systems and this isn't new. Sure, advances have occurred but the same could be said for steel material stress analysis (which is analyzed with the new, hip computer language....FORTRAN). If you think AI is the future, you're way behind where the puck was. What about companies who supply products to AI companies? You know...hardware. I work for one. When my RSUs vest, they get sold immediately. If you think you know something that nobody else knows, either you're wrong or you're illegally insider trading.
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bluquark
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Re: Why to not buy a tech fund?

Post by bluquark » Tue Dec 10, 2019 9:22 am

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?
This is a good question and nobody has answered it yet, so let me give it a shot. The net present value of any asset incorporates a discount rate and a risk premium, because people would rather have a dollar today than in 30 years, and because for their retirement or business planning, people would rather have a guarantee of 10 dollars in 30 years than a random amount between 2 and 20 dollars. Therefore the net present value of stocks is lower than their future value -- fully rational/efficient investors value them at less than the total return they predict.

By holding bonds, you harvest the risk-free discount rate over time. By holding stocks, you harvest both the risk-free discount rate plus a risk premium.

By holding a tech stock ETF, you also harvest the risk-free discount rate plus a risk premium. It's an investment with positive expected return as well. It's just that the risk premium isn't quite as rewarding relative to the risk you're taking.

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Re: Why to not buy a tech fund?

Post by abuss368 » Tue Dec 10, 2019 9:40 am

Over twenty years ago, our Merrill Lynch adviser told us how we had to invest in the Munder Net Net Fund. We were missing out! Of course at the time we believed he had our best interests in mind and relied on the "advice". We invested in the fund and continued to over time.

The fund practically went to zero during the technology bust.

Lesson learned: Don't search for the needle in the haystack. Buy the haystack.
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Re: Why to not buy a tech fund?

Post by KlangFool » Tue Dec 10, 2019 9:56 am

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

<< So with this logic, where ever invest in any stocks or index funds?>>

That is why we buy the whole market instead of individual sector.

<<I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things >>

And, how would this help in achieving your financial goal?

A) You are increasing your risk by concentrating in one sector.

B) How much outperformance against the total market do you expect?

C) What is the risk-adjusted return of this approach?

Put down some realistic numbers and ask yourself why should you do this?

KlangFool

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Re: Why to not buy a tech fund?

Post by bluquark » Tue Dec 10, 2019 10:41 am

abuss368 wrote:
Tue Dec 10, 2019 9:40 am
Over twenty years ago, our Merrill Lynch adviser told us how we had to invest in the Munder Net Net Fund. We were missing out! Of course at the time we believed he had our best interests in mind and relied on the "advice". We invested in the fund and continued to over time.

The fund practically went to zero during the technology bust.
"Tech stocks" as a group going to zero again is almost inconceivable, it's might even be the most diversified in terms of business models and independent sources of risk/return of all the sector funds. The fact that practically everybody talked like this about tech stocks back in ~2005 was even the best reason to buy into them. (It's obviously no longer contrarian to do so in 2019, although the local consensus of Bogleheads still gives the impression that it might be.)

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Re: Why to not buy a tech fund?

Post by KlangFool » Tue Dec 10, 2019 10:50 am

bluquark wrote:
Tue Dec 10, 2019 10:41 am
abuss368 wrote:
Tue Dec 10, 2019 9:40 am
Over twenty years ago, our Merrill Lynch adviser told us how we had to invest in the Munder Net Net Fund. We were missing out! Of course at the time we believed he had our best interests in mind and relied on the "advice". We invested in the fund and continued to over time.

The fund practically went to zero during the technology bust.
"Tech stocks" as a group going to zero again is almost inconceivable, it's might even be the most diversified in terms of business models and independent sources of risk/return of all the sector funds. The fact that practically everybody talked like this about tech stocks back in ~2005 was even the best reason to buy into them. (It's obviously no longer contrarian to do so in 2019, although the local consensus of Bogleheads still gives the impression that it might be.)
bluquark,

<<"Tech stocks" as a group going to zero again is almost inconceivable,>>

1) It does not have to go down to zero for you to lose money.

<<it's might even be the most diversified in terms of business models and independent sources of risk/return of all the sector funds. >>

2) This simply means that all the good news had been priced into the stocks. It is getting harder to beat the expectation.

3) This is the same old story as the Telecom bust.

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bluquark
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Re: Why to not buy a tech fund?

Post by bluquark » Tue Dec 10, 2019 11:06 am

I'm not defending the idea to buy a tech ETF. I'm just saying the argument for not doing so bear little relationship to the reasons not to buy one in 1997, so talk of "going to zero" sounds paranoid and unconvincing to tech optimists like the OP.

I think the reasons not to invest in a tech ETF are converging on the reasons not to invest in a Large-Cap Growth fund. S&P has abolished "technology" in their sector categorization and split them into more meaningful categories. ETFs like Vanguard's are left tracking an increasingly broad and meaningless blob.
3) This is the same old story as the Telecom bust.
Telecoms still looked like a coherent sector at the time, whereas there are both advertisers and manufacturers in tech ETFs. Totally different revenue models, debt burdens, customer and supplier base, etc. Their correlation ought to be basically the market beta, assuming that the "post-crash tech discount" has finally vanished.

I realize people made a very similar argument about telecoms and it was wrong. I just think it's not a refutation to observe that the argument "sounds similar". The argument is valid in theory, so something was different in practice with the telecom case, and is that something also present in the 2019 "tech industry" case?
Last edited by bluquark on Tue Dec 10, 2019 11:30 am, edited 8 times in total.

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Re: Why to not buy a tech fund?

Post by dknightd » Tue Dec 10, 2019 11:10 am

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
If you believe in an efficient market, there is little, or nothing, to be gained. All stocks will go up, or down, about the same.
You might have a good hunch, that others have not recognized. I would not go all in, but, would feel comfortable playing around the edges. I'm slightly heavy in emerging markets right now. Not a huge amount. Not really enough to make a difference one way or the other. But it keeps me engaged and interested. A three fund portfolio is boring. It might be the best thing to do, or it may not. I'm comfortable playing with about 10% of my savings/investments. Sometimes I win, sometimes I loose, I don't keep close track (which is probably stupid ;)
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

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Re: Why to not buy a tech fund?

Post by midareff » Tue Dec 10, 2019 11:16 am

There are several Tech and Healthcare Funds that have outperformed the S&P500 over > than the last 10 years, including review at the last 5 years, 3 years and prior 12 months. That's what the rear view mirror tells me. I can't read anything through the front windshield though, and that would be much more important. Fundamentally, it appears these funds have a higher alpha and will also decline faster than the S&P500 when a downtrend occurs. Ten years into the largest economic expansion on record I'm not sure this is the type of fund I would be looking without thinking I'm chasing past results but YMMV.

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Re: Why to not buy a tech fund?

Post by CurlyDave » Tue Dec 10, 2019 11:36 am

KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
Of course you know that if the EMH were really true Jeff Bezos would still be a stockbroker instead of one of the wealthiest men in existence, and Warren Buffet would be working in the back room of some brokerage house. Or Warren might have retired from that position, given his age.

The EMH is an unproven hypothesis, nothing more than a working assumption. The whole idea of something like a "Telecom Bust" proves that the EMH doesn't work all the time -- if it did money would have exited that sector in an an orderly fashion long before it actually did.

The idea of "tilting to value" is another example of the EMH not working particularly well. Value stocks are cheap because in its collective wisdom the overall market thinks their prospects are less than those of the general market.

There is nothing wrong with taking some percentage of one's portfolio, designating it as "fun money" and putting it into a specific sector. Especially if one is willing to do the research to choose that sector carefully.

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Re: Why to not buy a tech fund?

Post by Portfolio7 » Tue Dec 10, 2019 11:59 am

I did, years ago, and still own it. We have a ~5% allocation to FOCKX, essentially a Fidelity Nasdaq fund, that slots into the US large cap growth segment of my AA.

Fees are really high at 80 bpts. Our total portfolio fees are about 30-35 bpts weighted average (I also pay 35 bpts for my stable value fund, so the rest of my portfolio ranges from 3 bpts for Index funds to maybe 50 bpts for a few DFA funds). Excess returns for FOCKX (compared to Large Growth) have handily exceeded those high fees for the past ten years. I'm happy with the performance. The Sharpe ratio seems reasonable too. I do consider the extra volatility in my AA, but at 5% it's a marginal impact.

I understand tech stocks as a sector have in the past returned more than the general market, if the data I used for compares was accurate. SD is also higher than the market, so you need to be prepared for the volatility.

I am sure FOCKX has many weaknesses, but it's the only tech focused fund available in my 401K. I've been happy with the performance.
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Re: Why to not buy a tech fund?

Post by KlangFool » Tue Dec 10, 2019 11:59 am

CurlyDave wrote:
Tue Dec 10, 2019 11:36 am

There is nothing wrong with taking some percentage of one's portfolio, designating it as "fun money" and putting it into a specific sector. Especially if one is willing to do the research to choose that sector carefully.
CurlyDave,

Except when it is not worth the effort.

I have "fun money" from 5K to 10K. I gambled on the stock that could increase 20X to 40X. Meanwhile, what is the point of gambling on a sector fund? 10% more return per year? At 5% of the portfolio, it is only increasing the portfolio by 0.5% per year.

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Re: Why to not buy a tech fund?

Post by Independent George » Tue Dec 10, 2019 12:08 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?
Say what now?

Are you really asking about this in good faith?

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Re: Why to not buy a tech fund?

Post by TN_Boy » Tue Dec 10, 2019 3:18 pm

CurlyDave wrote:
Tue Dec 10, 2019 11:36 am
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
Of course you know that if the EMH were really true Jeff Bezos would still be a stockbroker instead of one of the wealthiest men in existence, and Warren Buffet would be working in the back room of some brokerage house. Or Warren might have retired from that position, given his age.

The EMH is an unproven hypothesis, nothing more than a working assumption. The whole idea of something like a "Telecom Bust" proves that the EMH doesn't work all the time -- if it did money would have exited that sector in an an orderly fashion long before it actually did.

The idea of "tilting to value" is another example of the EMH not working particularly well. Value stocks are cheap because in its collective wisdom the overall market thinks their prospects are less than those of the general market.

There is nothing wrong with taking some percentage of one's portfolio, designating it as "fun money" and putting it into a specific sector. Especially if one is willing to do the research to choose that sector carefully.
One can argue how well the EMH matches reality (I'm in the "pretty well" camp, based on the proven inability of most professional investors to beat an appropriate benchmark over time), but it says absolutely, positively nothing about whether or not Jeff Bezos could build a wildly successful company.

That said I don't disagree with your last paragraph.

Though I wouldn't buy a tech fund because AI is exciting.

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Re: Why to not buy a tech fund?

Post by HippoSir » Tue Dec 10, 2019 3:36 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info
Can you link the thread where you asked this?

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Re: Why to not buy a tech fund?

Post by CurlyDave » Tue Dec 10, 2019 4:10 pm

TN_Boy wrote:
Tue Dec 10, 2019 3:18 pm

...One can argue how well the EMH matches reality (I'm in the "pretty well" camp, based on the proven inability of most professional investors to beat an appropriate benchmark over time), but it says absolutely, positively nothing about whether or not Jeff Bezos could build a wildly successful company.

That said I don't disagree with your last paragraph.

Though I wouldn't buy a tech fund because AI is exciting.
I am old enough to remember the .com boom, and the subsequent .com bomb. There were thousands of small and some not-so-small companies exploring internet commerce.

If all investors at the time all knew exactly what was happening, they (and especially the venture capitalists) would have: (1) invested in successful e-commerce, and (2) pushed the companies where they had major holdings to use the successful business models. But, somehow Bezos figured out the recipe for "secret sauce" and the rest of the pack got left in his dust.

The corollary to "all investors know the same things" is that "all companies know the same things," which is clearly not true.

As much as the SEC, and others, would like us to think that knowledge is evenly shared, a dedicated investor can find, and sometimes guess, things that are not common knowledge. This is not insider trading and not illegal. It is correlation of publicly-known facts. The real problem is that it is hard, takes more time than most of us are willing to dedicate to it, and never certain.

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Re: Why to not buy a tech fund?

Post by mervinj7 » Tue Dec 10, 2019 4:16 pm

HippoSir wrote:
Tue Dec 10, 2019 3:36 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info
Can you link the thread where you asked this?
Here's his older thread on tech funds. viewtopic.php?f=10&t=287269&p=4677436&h ... h#p4677318

As far as I can tell, I don't see a single reply that says tech funds "will never go up since the market already reflects all available info."

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Re: Why to not buy a tech fund?

Post by DaftInvestor » Tue Dec 10, 2019 4:17 pm

If someone here told you "they will never go up" there would have been 100 posts refuting such a claim so I am pretty sure that's not quite what you were told. What you were probably told was not to put all your eggs into one basket. Over the decades the market trends only in one direction - UP (so I am sure you weren't told tech stocks will never go up). And yes - a lot of the tech-giants have high expectations of growth already built into their stock prices (so you don't know if they will increase at a higher rate than consumer-staples/financials/energy/etc. over the next 10 years - oh - and by the way - the growth of all these other industries benefits by an economy driven by tech advancements - which sector will benefit more - who knows - invest in them all).

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Re: Why to not buy a tech fund?

Post by TN_Boy » Tue Dec 10, 2019 4:35 pm

CurlyDave wrote:
Tue Dec 10, 2019 4:10 pm
TN_Boy wrote:
Tue Dec 10, 2019 3:18 pm

...One can argue how well the EMH matches reality (I'm in the "pretty well" camp, based on the proven inability of most professional investors to beat an appropriate benchmark over time), but it says absolutely, positively nothing about whether or not Jeff Bezos could build a wildly successful company.

That said I don't disagree with your last paragraph.

Though I wouldn't buy a tech fund because AI is exciting.
I am old enough to remember the .com boom, and the subsequent .com bomb. There were thousands of small and some not-so-small companies exploring internet commerce.

If all investors at the time all knew exactly what was happening, they (and especially the venture capitalists) would have: (1) invested in successful e-commerce, and (2) pushed the companies where they had major holdings to use the successful business models. But, somehow Bezos figured out the recipe for "secret sauce" and the rest of the pack got left in his dust.

The corollary to "all investors know the same things" is that "all companies know the same things," which is clearly not true.

As much as the SEC, and others, would like us to think that knowledge is evenly shared, a dedicated investor can find, and sometimes guess, things that are not common knowledge. This is not insider trading and not illegal. It is correlation of publicly-known facts. The real problem is that it is hard, takes more time than most of us are willing to dedicate to it, and never certain.
And yet, the evidence shows that over time dedicated investors (like the pro's running money in active mutual funds who spend all day doing exactly what you mention -- correlating facts) almost without exception fail to beat relevant benchmarks over time (wining for six months or a year doesn't count). Which I consider very good evidence that the semi-strong version of the EMH is mostly true.

Bezos's success didn't violate the EMH. The EMH would just state that given public information, it was hard to determine that Amazon would succeed wildly while other web shopping companies did not. Even given non-public information, Amazon's success was hard to predict. How many years did they go without turning a profit? You needed a crystal ball to see that the business model would succeed. And who would have predicated several years ago that one of their most profitable business ventures by 2019 would be online storage?

I don't personally think that the dot com boom and bust violated EMH. There were wild successes and dismal failures. It was hard to tell them apart until they happened. It still amazes me how long Amazon survived before making a dime.

I don't just remember the dot com boom and bust; I was working in the tech sector while it was happening!

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Re: Why to not buy a tech fund?

Post by ohai » Tue Dec 10, 2019 4:38 pm

"Tech" stocks have a strong association with growth and high beta. So, an investor could just buy tech funds to reflect a bullish view. It might not be the most efficient return per unit of risk, but neither is most leverage or many other common ways to gain market access.

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Re: Why to not buy a tech fund?

Post by rascott » Tue Dec 10, 2019 4:53 pm

Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
People have hated QQQ since the dot com bust. All it has done for the last 15 years is blown the doors off of the SP500.

Tech investors weren't wrong..... they were just early. I have a tech bias in my investing.... offset somewhat by US small value. My own barbell of sorts.

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Re: Why to not buy a tech fund?

Post by CurlyDave » Wed Dec 11, 2019 12:59 am

rascott wrote:
Tue Dec 10, 2019 4:53 pm

...People have hated QQQ since the dot com bust. All it has done for the last 15 years is blown the doors off of the SP500.

Tech investors weren't wrong..... they were just early. I have a tech bias in my investing.... offset somewhat by US small value. My own barbell of sorts.
For the past 10 years, possibly a little longer I have held QQQ instead of SPY or VOO. I am with you on that.

People can call this "performance chasing" or anything else they want, but the reality is that I am writing this from my retirement home on acreage with a view that will not quit instead of from a double wide in a senior trailer park partly because of that decision. Of course having a high savings rate before retiring, consistently investing, and putting a lot of sweat equity into rental properties also played a role.

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Re: Why to not buy a tech fund?

Post by CurlyDave » Wed Dec 11, 2019 1:25 am

TN_Boy wrote:
Tue Dec 10, 2019 4:35 pm

...And yet, the evidence shows that over time dedicated investors (like the pro's running money in active mutual funds who spend all day doing exactly what you mention -- correlating facts) almost without exception fail to beat relevant benchmarks over time (wining for six months or a year doesn't count). Which I consider very good evidence that the semi-strong version of the EMH is mostly true.

Bezos's success didn't violate the EMH. The EMH would just state that given public information, it was hard to determine that Amazon would succeed wildly while other web shopping companies did not. Even given non-public information, Amazon's success was hard to predict. How many years did they go without turning a profit? You needed a crystal ball to see that the business model would succeed. And who would have predicated several years ago that one of their most profitable business ventures by 2019 would be online storage?

I don't personally think that the dot com boom and bust violated EMH. There were wild successes and dismal failures. It was hard to tell them apart until they happened. It still amazes me how long Amazon survived before making a dime.

I don't just remember the dot com boom and bust; I was working in the tech sector while it was happening!
Not only was I working in the tech sector, my house was only one freeway exit North of Sand Hill Road -- the epicenter of Silicon Valley venture capital at that time.

The problem with the "pros running money in active mutual funds" and the reason for their mostly dismal track record is that they have a very inflated opinion of their own intelligence. I don't really think their lack of superior performance speaks to the validity of the EMH as much as it speaks to their lack of real knowledge. But, they are good at convincing many people that it requires an "expert" to manage their own money.

The fact that every once in a while a Warren Buffet or a Peter Lynch comes along is very hard to explain away with the EMH.

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Re: Why to not buy a tech fund?

Post by rascott » Wed Dec 11, 2019 2:16 am

CurlyDave wrote:
Wed Dec 11, 2019 12:59 am
rascott wrote:
Tue Dec 10, 2019 4:53 pm

...People have hated QQQ since the dot com bust. All it has done for the last 15 years is blown the doors off of the SP500.

Tech investors weren't wrong..... they were just early. I have a tech bias in my investing.... offset somewhat by US small value. My own barbell of sorts.
For the past 10 years, possibly a little longer I have held QQQ instead of SPY or VOO. I am with you on that.

People can call this "performance chasing" or anything else they want, but the reality is that I am writing this from my retirement home on acreage with a view that will not quit instead of from a double wide in a senior trailer park partly because of that decision. Of course having a high savings rate before retiring, consistently investing, and putting a lot of sweat equity into rental properties also played a role.

I do find it interesting that everyone says you can't beat the "market " over a long time period..... but the committee that picks the NASDAQ 100 sure as hell did since 2003.

How does that jive with EMH?


Maybe it's like folks that say that international will catchup with the US after only trailing for 100+ years.

Sometimes it's wise to ignore the academics and data miners and just try to be a real investor of secular trends (not a stock picker) . Many modern day tech companies fit the model of value investing in many ways.

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Re: Why to not buy a tech fund?

Post by Schlabba » Wed Dec 11, 2019 6:45 am

rascott wrote:
Wed Dec 11, 2019 2:16 am
CurlyDave wrote:
Wed Dec 11, 2019 12:59 am
rascott wrote:
Tue Dec 10, 2019 4:53 pm

...People have hated QQQ since the dot com bust. All it has done for the last 15 years is blown the doors off of the SP500.

Tech investors weren't wrong..... they were just early. I have a tech bias in my investing.... offset somewhat by US small value. My own barbell of sorts.
For the past 10 years, possibly a little longer I have held QQQ instead of SPY or VOO. I am with you on that.

People can call this "performance chasing" or anything else they want, but the reality is that I am writing this from my retirement home on acreage with a view that will not quit instead of from a double wide in a senior trailer park partly because of that decision. Of course having a high savings rate before retiring, consistently investing, and putting a lot of sweat equity into rental properties also played a role.

I do find it interesting that everyone says you can't beat the "market " over a long time period..... but the committee that picks the NASDAQ 100 sure as hell did since 2003.

How does that jive with EMH?


Maybe it's like folks that say that international will catchup with the US after only trailing for 100+ years.

Sometimes it's wise to ignore the academics and data miners and just try to be a real investor of secular trends (not a stock picker) . Many modern day tech companies fit the model of value investing in many ways.
Like said before, EMH does not mean all shares have the same return. It just means that right now you cannot predict who will outperform.
It is great that the US outperformed for 100 years, now tell me what is the best investment today to be rich in 2119.

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Re: Why to not buy a tech fund?

Post by TN_Boy » Wed Dec 11, 2019 9:23 am

CurlyDave wrote:
Wed Dec 11, 2019 1:25 am
TN_Boy wrote:
Tue Dec 10, 2019 4:35 pm

...And yet, the evidence shows that over time dedicated investors (like the pro's running money in active mutual funds who spend all day doing exactly what you mention -- correlating facts) almost without exception fail to beat relevant benchmarks over time (wining for six months or a year doesn't count). Which I consider very good evidence that the semi-strong version of the EMH is mostly true.

Bezos's success didn't violate the EMH. The EMH would just state that given public information, it was hard to determine that Amazon would succeed wildly while other web shopping companies did not. Even given non-public information, Amazon's success was hard to predict. How many years did they go without turning a profit? You needed a crystal ball to see that the business model would succeed. And who would have predicated several years ago that one of their most profitable business ventures by 2019 would be online storage?

I don't personally think that the dot com boom and bust violated EMH. There were wild successes and dismal failures. It was hard to tell them apart until they happened. It still amazes me how long Amazon survived before making a dime.

I don't just remember the dot com boom and bust; I was working in the tech sector while it was happening!
Not only was I working in the tech sector, my house was only one freeway exit North of Sand Hill Road -- the epicenter of Silicon Valley venture capital at that time.

The problem with the "pros running money in active mutual funds" and the reason for their mostly dismal track record is that they have a very inflated opinion of their own intelligence. I don't really think their lack of superior performance speaks to the validity of the EMH as much as it speaks to their lack of real knowledge. But, they are good at convincing many people that it requires an "expert" to manage their own money.

The fact that every once in a while a Warren Buffet or a Peter Lynch comes along is very hard to explain away with the EMH.
You are definitely not going to convince me that the disappointing record of active money managers is because they are not very smart.

The existence of a few successes doesn't refute EMH at all. Given thousands and thousands of money managers, some would shine by sheer luck if nothing else. And some of Buffet's success is obviously due to being an owner, not an investor (Berkshire can buy and manage companies).

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Re: Why to not buy a tech fund?

Post by oldcomputerguy » Wed Dec 11, 2019 9:28 am

Jack FFR1846 wrote:
Tue Dec 10, 2019 9:16 am
Sure, advances have occurred but the same could be said for steel material stress analysis (which is analyzed with the new, hip computer language....FORTRAN).
:sharebeer (and kudos for knowing what FORTRAN is! :happy ).
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)

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Re: Why to not buy a tech fund?

Post by TN_Boy » Wed Dec 11, 2019 9:35 am

rascott wrote:
Tue Dec 10, 2019 4:53 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
People have hated QQQ since the dot com bust. All it has done for the last 15 years is blown the doors off of the SP500.

Tech investors weren't wrong..... they were just early. I have a tech bias in my investing.... offset somewhat by US small value. My own barbell of sorts.
Tech investors were not early. They prospered mightily prior to 2000. Then gave it back .... now they have prospered some more. Perhaps they will give it back again. I know people in the tech industry who thought they were investing geniuses up until 2000 (then, they were sad).

Investing in certain US based tech companies has been a great idea for the last few years. Perhaps this will continue. Perhaps the people who invested in those stocks beginning back in 2003 knew this would happen. Now they should give us a preview of what will happen the next 15 years.

Either way, I think buying a tech fund now because AI maybe has a cool future is not great investing process. If you like tech fine. But don't think this is an insightful way to build a portfolio.

(the *barbell* of US small value and tech is an interesting idea incidentally ... I kinda like the idea were I to overweight tech)

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Jesteroftheswamp
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Re: Why to not buy a tech fund?

Post by Jesteroftheswamp » Sat Dec 21, 2019 5:52 pm

KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.

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Re: Why to not buy a tech fund?

Post by KlangFool » Sat Dec 21, 2019 6:09 pm

Jesteroftheswamp wrote:
Sat Dec 21, 2019 5:52 pm
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.
Jesteroftheswamp,

You need to separate 2 questions here:

A) Why do I think the tech fund will beat the total stock market index fund?

B) Why do I think that the tech fund will appreciate much higher than expectation?

For (A), if the tech fund cannot beat the total market index fund, why are you investing in the tech fund with a higher risk but not a higher return?

For (B), the stock price represents all the information plus the expectation of how the company will perform. So, in order for the stock price to go up, it needs to beat the expectation.

<<knowing this negates the possibility of capital appreciation over a fairly long period of time.>>

You are asking the wrong question. If the total stock market index fund can return 10% per year, why would I invest in the tech fund unless it can return 20+% per year? Why would I take the risk without the payback for the risk?

YTD return of VTSAX is around 27%. How much more return do you get for your tech fund?

KlangFool

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Brianmcg321
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Re: Why to not buy a tech fund?

Post by Brianmcg321 » Sun Dec 22, 2019 12:01 am

Jesteroftheswamp wrote:
Sat Dec 21, 2019 5:52 pm
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.
Nobody said a tech fund wouldn't increase in value.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

rascott
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Re: Why to not buy a tech fund?

Post by rascott » Sun Dec 22, 2019 12:34 am

KlangFool wrote:
Sat Dec 21, 2019 6:09 pm
Jesteroftheswamp wrote:
Sat Dec 21, 2019 5:52 pm
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.
Jesteroftheswamp,

You need to separate 2 questions here:

A) Why do I think the tech fund will beat the total stock market index fund?

B) Why do I think that the tech fund will appreciate much higher than expectation?

For (A), if the tech fund cannot beat the total market index fund, why are you investing in the tech fund with a higher risk but not a higher return?

For (B), the stock price represents all the information plus the expectation of how the company will perform. So, in order for the stock price to go up, it needs to beat the expectation.

<<knowing this negates the possibility of capital appreciation over a fairly long period of time.>>

You are asking the wrong question. If the total stock market index fund can return 10% per year, why would I invest in the tech fund unless it can return 20+% per year? Why would I take the risk without the payback for the risk?

YTD return of VTSAX is around 27%. How much more return do you get for your tech fund?

KlangFool
VGT is up like 46%

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1789
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Re: Why to not buy a tech fund?

Post by 1789 » Sun Dec 22, 2019 1:07 am

rascott wrote:
Sun Dec 22, 2019 12:34 am
KlangFool wrote:
Sat Dec 21, 2019 6:09 pm
Jesteroftheswamp wrote:
Sat Dec 21, 2019 5:52 pm
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm
Jesteroftheswamp wrote:
Mon Dec 09, 2019 8:34 pm
Once I posted here asking about tech funds, and I was told to not buy since they will never go up since the market already reflects all available info, including expected future growth (Efficient market hyp.). So with this logic, where ever invest in any stocks or index funds?

I’d consider weighing my portfolio a little heavier with a vanguard tech fund as I think a lot of exciting things will be happing with the future of AI, among other innovations. Is it the terrible idea that this forum makes me believe it is?
Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.
Jesteroftheswamp,

You need to separate 2 questions here:

A) Why do I think the tech fund will beat the total stock market index fund?

B) Why do I think that the tech fund will appreciate much higher than expectation?

For (A), if the tech fund cannot beat the total market index fund, why are you investing in the tech fund with a higher risk but not a higher return?

For (B), the stock price represents all the information plus the expectation of how the company will perform. So, in order for the stock price to go up, it needs to beat the expectation.

<<knowing this negates the possibility of capital appreciation over a fairly long period of time.>>

You are asking the wrong question. If the total stock market index fund can return 10% per year, why would I invest in the tech fund unless it can return 20+% per year? Why would I take the risk without the payback for the risk?

YTD return of VTSAX is around 27%. How much more return do you get for your tech fund?

KlangFool
VGT is up like 46%
rascott,

The risk is significant. Assume MSFT and APPLE (two companies that covers 32% of this fund) closes a year -10% down, and assume everything else is constant. How much would this decrease VTSAX vs. VGT would be something to think about. Honestly as an engineer working in semiconductor industry, i can tell that things changes pretty quickly in overall tech industry. Knowing that Apple was on the merge of bankruptcy in mid 1990s, i don't see why it is plausible to bet on a fund like this.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

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Re: Why to not buy a tech fund?

Post by firebirdparts » Sun Dec 22, 2019 6:55 am

Hey fidelity select semiconductors is up 60% YTD. Just saying.
A fool and your money are soon partners

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Re: Why to not buy a tech fund?

Post by KlangFool » Sun Dec 22, 2019 8:13 am

firebirdparts wrote:
Sun Dec 22, 2019 6:55 am
Hey fidelity select semiconductors is up 60% YTD. Just saying.
Then, it is time for OP to sell down the fund.

KlangFool

rascott
Posts: 1766
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Re: Why to not buy a tech fund?

Post by rascott » Sun Dec 22, 2019 9:18 am

1789 wrote:
Sun Dec 22, 2019 1:07 am
rascott wrote:
Sun Dec 22, 2019 12:34 am
KlangFool wrote:
Sat Dec 21, 2019 6:09 pm
Jesteroftheswamp wrote:
Sat Dec 21, 2019 5:52 pm
KlangFool wrote:
Mon Dec 09, 2019 8:42 pm


Jesteroftheswamp,

You know this. So does everyone else. Why do you think the stock price does not reflect this?

Check out the history of Telecom bust. You are probably not old enough to go through this boom and bust. This kind of cycle repeats itself all the time.

KlangFool
So because everyone knows this, the fund has no chance of increasing in value? What I am not understanding is how me, and everyone else, knowing this negates the possibility of capital appreciation over a fairly long period of time. Hope you can explain.
Jesteroftheswamp,

You need to separate 2 questions here:

A) Why do I think the tech fund will beat the total stock market index fund?

B) Why do I think that the tech fund will appreciate much higher than expectation?

For (A), if the tech fund cannot beat the total market index fund, why are you investing in the tech fund with a higher risk but not a higher return?

For (B), the stock price represents all the information plus the expectation of how the company will perform. So, in order for the stock price to go up, it needs to beat the expectation.

<<knowing this negates the possibility of capital appreciation over a fairly long period of time.>>

You are asking the wrong question. If the total stock market index fund can return 10% per year, why would I invest in the tech fund unless it can return 20+% per year? Why would I take the risk without the payback for the risk?

YTD return of VTSAX is around 27%. How much more return do you get for your tech fund?

KlangFool
VGT is up like 46%
rascott,

The risk is significant. Assume MSFT and APPLE (two companies that covers 32% of this fund) closes a year -10% down, and assume everything else is constant. How much would this decrease VTSAX vs. VGT would be something to think about. Honestly as an engineer working in semiconductor industry, i can tell that things changes pretty quickly in overall tech industry. Knowing that Apple was on the merge of bankruptcy in mid 1990s, i don't see why it is plausible to bet on a fund like this.
A fund like FBSOX (Fidelity Select IT Services) has beaten the market since inception by roughly 6% CAGR..... going back to the late 90s.

VGT is a "dumb" index fund and it has beaten total market since it was created in 2005 by nearly 4% CAGR.
Last edited by rascott on Sun Dec 22, 2019 9:26 am, edited 1 time in total.

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Re: Why to not buy a tech fund?

Post by KlangFool » Sun Dec 22, 2019 9:24 am

OP,

How many percent of your portfolio is in the tech fund?

Let's assume that it is 5%, just to keep this simple, we assume that VTSAX will end up the year at 30% and the tech fund will go up 60%.

A) With VTSAX, your portfolio goes up 5% x 30% = 1.5%

B) With Tech fund, your portfolio goes up 5% x 60% = 3%.

C) The difference is 3% - 1.5% = 1.5%

Do you see the problem here? The gain to your portfolio is insignificant even with the 60% gain of the sector fund! In order for the tech fund to really help your portfolio, it needs to be a huge portion of your overall portfolio. But, then, you are taking a tremendous amount of risk.

The risk versus reward is no good for the sector fund. Even if you win, the gain is insignificant. But, if you lose, you will lose a lot of money.

I gambled on individual stocks with less than 10K of my money. But, those stock needs to have the possibility of 20X to 40X return in 5 years. Only then, it is worth my effort to bet on them.

KlangFool

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