Warren Buffett once noted that ‘a pack of lemmings looks like a bunch of rugged industrialists compared with Wall Street when it gets a concept in its teeth’ and those investors who piled in to tech stocks must now ask themselves why they were buying and what they should do after three days of sharp falls,” says Russ Mould, AJ Bell Investment Director.
“If they were just buying because they felt everyone else was and were simply looking to flip the paper on to someone else, they may feel pretty exposed and unsure of what to do. If they were buying out of conviction that companies such as Facebook, Alphabet, Amazon, Apple, Netflix and Microsoft – the FAAANM sextet which still represents represent a quarter of the S&P 500 index’s total valuation on its own – have such dominant market positions, shrewd management, strong finances and powerful future cash flow prospects that they deserve even higher valuations then they may be inclined to buy on the dips.
“This temptation to run with the narratives that technology stocks are relatively immune to the pandemic and worth premium valuations because of the relative scarcity of consistent earnings growth right now is quite understandable.
“But there remains the danger that neither narrative is particularly new and is therefore at least partly priced in to technology stocks’ valuations.”