Should You Buy The Dip?

Lifestyle

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Are you keeping an eye on the technology stock sell-off? The tech sector pulled back quite a bit recently. Is it a good time to buy into this overpriced sector? I’m not sure, but I finally got over my fear of tech stocks. I avoided technology stocks for many years because I was gun shy from the previous tech crash – the Dot Com Bubble. Back then, I was a new investor and had a big percentage of my net worth in tech stocks. When the bubble burst, my portfolio took a nosedive. Since then, I’ve been a lot more conservative and avoided tech because they always seem so expensive compared to other stocks. Mostly, I invested in index funds and solid dividend stocks. This is a slow and steady strategy. Our portfolio grew steadily and we have done well over the years. However, we missed out on the spectacular gains of the last few years.

Now that we are more solid financially, I can afford to take more chances. The ongoing technology stock correction is giving me the opportunity to put a little money in growth stocks. I’m pretty conservative so this will be just a small portion of our portfolio, probably less than 5%. That’s enough to get the blood pumping, but it won’t hurt us if tech stocks stay down for an extended. Many tech stocks never reached the height they achieved in 2000. For example, Intel’s stock’s high was $75.81 per share back in August 2000. It hasn’t reached that level in 22 years. Most of my net worth was in Intel back in 2000. Do you see why I’m aversed to tech companies and tech stocks?

Tech stocks correction

Wow, tech stocks really cratered over the last several months. Let’s check on a few big names. (2/12/2022)

NVDA – NVidia’s 52 week high was $346.47 per share. Recently, it dropped as low as 219. That’s a 37% decrease. NVidia is a good company to buy if you believe in Metaverse and gaming. They make powerful graphic cards and chips. I picked up a few shares over 2 purchases. This method spreads it out a little so the average price was around $250. I put in an order at $220, but it didn’t fill. Oh well. You rarely can buy at the perfect bottom.

Meta – Formerly known as Facebook. Meta’s 52 week high was 384.33. The price per share dropped to 220 and might go down further. That’s a 43% drop so far. Meta is pushing the Metaverse hard and lost a ton of money last quarter. They also lost some users and they are fighting new regulations in Europe. I’m not a big believer in Facebook so I’ll pass on this stock. Also, I think the Metaverse has a long way to go. It’ll take many years to get the equipment to a user-friendly level.

NFLX – Netflix’s 52 week high was 700.99. The recent low was 359.7, a 49% decrease. Yikes! I don’t watch much TV so I don’t know what the fuzz is all about.

SHOP – Shopify’s 52 week high was $1,763/share. The recent low was 809. That’s a 54% decrease. They are an e-commerce company.

Many high-growth tech stocks are dropping like rocks. There are several reasons for this. Inflation is heating up and it will be more expensive to borrow money to fund those expensive research and development programs. Also, the tech sector has done so well that their valuations were very high. These reasons led professional wealth managers to rotate out of tech to value stocks. These value stocks didn’t do as well as tech over the last two years so their valuations are a lot more reasonable. Also, they usually perform well in high inflation periods. Oh, the geopolitical issue in Ukraine isn’t helping either. That looks like it might be spinning out of control.

YTD performance

The tech-heavy QQQ index has fallen about 11% since the beginning of the year. That’s not too bad considering how terrible big-name tech stocks performed. Although, only the big decreases made the news. There are plenty of solid tech stocks that dropped about 11%, like Microsoft, Cisco, and Intel.

In comparison, our net worth is a lot more stable because our investments are a lot more conservative. Our net worth dropped about 2%. That’s the value of a conservative portfolio. Your net worth is a lot more stable during down markets.

My recent tech stock purchases are okay for now.

I purchased NVidia at the average price of $250. It last closed at $239.50. Not great so far, but it’s an opportunity to average down further. I’ll put in some orders next week.

I also purchased Unity Software for about $90/shares. On Friday, it closed at 111.35. That’s not too bad at all.

Tech stock will be quite volatile this year. There will be a lot of ups and downs. If there is another big correction, I’ll pick up a few more shares. We still have many years until we need to sell these stocks so we can afford to wait for recovery. That’s really the key. If you can afford to wait out the volatility, you’ll probably do well by buying the dip. That’s the secret to wealth – keep investing.

What about you? Did you pick up any tech stocks recently?

Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.