5 Major Tips for Investing in Tech Stocks

Woman with wads of money, a tablet and a note and pen

It’s almost difficult to tell a person who wants to invest in enterprise software firms to follow the same advice given to someone who intends to invest in a company that manufactures mobile phones. This is because the technology industry is large and vast, so the continuous improvement, change and service chains play a major role in making the sector more dynamic. Therefore, investors just have to be ready to take the risks.

To further buttress this point, companies keep changing and upgrading their products and services as more advancements in technology are made. This has led to a tremendous expansion of successful tech companies whose stock value rose based on predictions of more growth. With this in mind, an investor can easily decide on what company (or companies) to put money in or what number of shares to buy.

To make it a lot easier for you, here are 5 major tips for investing in tech stocks.

1. Keep in Mind that Every Investment is a Risk

The technologies, products and services that companies from the tech industry offer are usually hyped to the moon and back. While smaller companies that aren’t following the trends are expected to flop before they even make any headway. Generally, this is a sector where even the most experienced investors can get emotional about fluctuations and the spending habits of customers change without notice.

For example, Nokia phones were most popular in the early 2000’s but with the emergence of smart phones from Apple and Samsung, there’s been a decline in the rate at which Nokia products are bought recently. This is a sign that investors are also supposed to keep up with the trend in order to make high Return on Investment (ROI).

2. Take Advantage of Opportunities

One of the reasons why lingering risks can negatively affect the shares of a company, is because humans are generally risk averse creatures. Even when there are certain odds to show that there could be a favorable outcome at the end of any depression, investors always avoid getting involved. This is also why stocks are constantly outperforming bonds, no matter the time frame.

But there are cases where uncertainties have created great opportunity to invest. For example, Facebook was expected to decline continuously after it planned on monetizing mobile usage in 2012. The Qwikster fiasco led to a loss in the value of Netflix shares in 2011. But after all the fears, these companies still top on the list of high earners in the tech industry.

Cash spewing out of the computer

3. Investment Plans, Expansion rates and Valuations are Important

The free cash flow, earnings and sales of a company shouldn’t be ignored because you could miss major opportunities if you start setting rules on which to pay preferential attention to. For example, Facebook shares traded for more than $70 in 2014 – against the estimated $1.92. Google shares also went up over 350% since 2006. Meaning that any investor who backed out before the shares started selling will regret ever doing so.

There are companies that grow at a really fast rate. You should keep an eye on their performance and projections for the next couple of years. But still leave room for risks.

4. Invest in a company with Good Management

There are companies that have succeeded even when they have strong competitors. This is because the management or owners can come up with substantial ideas as the years roll by – in order to consistently improve consumer experience. Also keep in mind that a small business with good management is likely to last longer in the industry as compared to a big scale company that rose to fame by chance.

5. Don’t Invest in Companies that just want to Challenge not Make an Impact

There are companies that just want to be an opposition and a threat in order not to lose value or customers. Be wary of those. You won’t want to invest in a company trying to rival Google, when you can make money for a long time investing on Google itself.

Money changing hands representing investment

Finally, keep an eye on the tech industry and make the right decision with the help of these tips.

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