Here are the characteristics of BioTech / High-Tech Sectors:
VALUATION is THE most important element
Perceived value is much more influential than any bull/bear cycle and will make or lose money accordingly.
Example: Tencent 0700.HK Stock – China’s most used internet portal
- From late 2007 the Global Financial Crisis hit all worldwide indices. The Hang Seng Index retraced 70% or so in a year but high-tech stocks, such as Tencent, were still perceived to be high in value and increased even further completely ignoring worldwide market crisis (Fig. 1).
- Tencent has risen 500-600% in the last 10 years, not correlated to the equity market cycles.
Fig. 1 – Tencent vs. HSI illustrating if the perceived value is high then even if there is a Financial Crisis, the stock is not affected. (Source: Finance.yahoo.com)
Conclusion
- These sectors are to be used appropriately in a market strategy and are NOT buy and hold cases.
- Successful returns are found on the basis of EXPECTATION of where the industry is going.
Best,
Michael
