Paul Meeks

Paul Meeks

A Technology Portfolios Commentary For The First Half Of 2020

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After a rip-roaring second quarter in which my technology stocks (as measured by the return on the NASDAQ 100) climbed +30% despite the pandemic, it would make sense that the market would cool off and maybe even give back some of its gains. I am a contrarian, but I am also betting on this outcome for the second half of 2020. That is, I expect that stocks will trade in a range albeit one that is wider than normal given the continued uncertainty around COVID. I think that we must wait at least until September for the market’s next “tell.” Although COVID cases still are uncomfortably rising in the U.S., and at a quicker pace in some states, investors likely will give the economy and the markets a “free pass” until we see how we fare in the fall as our students return to school and businesses more aggressively reopen. Of course, we also are tracking how close we are to approving a vaccine and then mass distributing it. Again, a medical solution that meets both criteria appears to be unrealistic before the end of 2020 much less by autumn.

Bottom line: With a new portfolio, today I would only invest a portion, maybe half, of its equity allocation. I am confident that the underinvested will not miss much of a positive catalyst for the rest of this summer. Where I am most likely to be wrong, however, is in underestimating the risk that COVID cases do not skyrocket in the interim, so tell our knucklehead nephew to stay out of crowded bars and wear a mask outside of the home.

I also am confident in the continued resilience of the technology sector. Since I managed $8 billion for Merrill Lynch Investment Managers in technology stocks during the Internet Bubble, and, of course, was there when it popped, I am often asked if we are at the cusp of similar carnage since technology stocks have done absolutely and relatively well for so long before and during COVID. As a portfolio manager, I sweat these details. Yes, I am a bit worried about technology stock valuations versus the sector’s norms and compared to the rest of the market. However, we are still far from Internet Bubble nonsense valuations. Here is evidence from Gurufocus.com:

Look above at the historic ranges of the price/earnings and price/sales ratios of the technology sector as defined by the iShares Dow Jones U.S. Technology ETF (IYW). On the left, are the halcyon days of the Internet Bubble before it popped. As you can see on the right, we are not there yet for technology stock valuations.

Furthermore, I well remember those days. Any private company that uttered “.com” could go public at an absurd valuation even though the firm was unprofitable and expected to be so for the foreseeable future. Just show me “eyeballs” on your website! Profits or cashflow be damned! Today, it is much tougher to bring even a solid company public, so those that make it are much more worthy. Also, I feel that with the world transitioning even more quickly from analog to digital during COVID that key technology enablers have even a bigger role to play in 2020 than they did in 1999.

Of course, I could be wrong, but I think that the worst potential correction in technology stocks will be benign compared to the damage that was caused at the end of the Internet era. Yes, when I go to stocks, I go to a 40% weight in the sector as a proportion of my overall equities portfolio. That is the current exposure to technology and technology-like stocks in most major U.S. indices and I am cool with that.

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All opinions expressed Paul Meeks are solely Meeks’ opinions and do not reflect the opinions of Independent Solutions Wealth Management, LLC (“ISWM”). You should not treat any opinion expressed by Meeks as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion for educational purposes only and does not constitute investment, legal or tax advice, an offer to buy or sell any security or insurance product; or an endorsement of any third party or such third party’s views. Meeks opinions are based upon information he considers reliable, but neither ISWM nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Meeks, ISWM, its affiliates and/or subsidiaries are not under any obligation to update or correct any information provided on this website. Meeks statements and opinions are subject to change without notice. No part of Meeks compensation from ISWM is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Meeks nor ISWM guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed. Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. Before acting on information, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from an investment adviser.

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