Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
But before we get to today’s questions, I wanted to mention one thing.
Earlier this week, my friend and colleague Teeka Tiwari hosted a free event for investors.
Teeka showed a little-known strategy that lets everyday investors take a stake in pre-IPO shares of a company. As an active angel investor, I can tell you how profitable it can be to invest in quality, early stage private companies.
I’ve known Teeka for a long time. He’s one of the brightest minds in the newsletter world. And I know he is always looking out for his readers. So if you’d like to hear more from Teeka, you can get the full story here.
Now let’s get to the mailbag.
And remember, if you have a question you’d like answered next week, be sure you submit it right here.
The best time to invest in tech…
First up is a question about market conditions and what they could mean for the technology sector…
Jeff, since tech stocks are usually very volatile and the impending, inevitable (not if but when) stock market correction will cause tech stocks to be much cheaper, should we consider buying your recommended tech stocks only after the inevitable correction rather than now? I really appreciate your technical expertise and enjoy reading your monthly publications.
– Stanley P.
Thanks for your question, Stanley. And thanks for being a reader.
Just as a reminder, I can’t give personalized investment advice. But what I can say is that there’s never been a better time to invest in quality technology companies. The current U.S. economy is one of the strongest I’ve ever seen in my 30-plus years of investing.
I know that there are some proclaiming that we are in for a market crash… but I just don’t see it right now. U.S. unemployment rate has dropped to the lowest levels in 50 years. And by the last count, the U.S. labor market has 7.5 million unfilled jobs.
Equally important, the labor force participation rate is one of the highest on record. This is arguably more important than the unemployment levels.
Most of the weakness in the market today is driven by uncertainty around the ongoing trade negotiations with China. But as my regular readers know, I believe China will sign a new, fair trade deal with the U.S. The country will have no other option. China is really hurting right now.
As I write this, President Trump is attending the G20 summit in Osaka, Japan. Trump has a scheduled meeting with Chinese president Xi Jinping on Saturday morning Japan time. I wouldn’t at all be surprised if the leaders used this opportunity to announce the new deal.
A lot of technology companies, especially semiconductor firms with ties to mainland China, have felt the impact of the trade tariffs. But once a deal is signed, what do we think will happen to these technology stocks and the broader market?
Putting in place a trade agreement between the two countries will be good for not just the U.S. and China but the global economy. This is a great tailwind for the rest of 2019 and into 2020. I expect we’ll see a market-wide rally, and technology stocks with exposure to China (which is most of them) will see the largest gains.
And with any investment, there are always two key things that we can do as investors to maximize our profits and control our risk.
First, the valuation of any company is critical. We don’t want to invest in companies that are grossly overvalued. The majority of the profit potential is already gone. We want to invest in companies that are reasonably valued or preferably undervalued or misunderstood by the market.
Second, we must have a risk management strategy for every position. This comes in the form of some kind of stop loss strategy – a price at which we will sell a position to preserve profits and control any downside risk. By having this in place, we’ll know to close out all positions that are affected by any market downturn. Investors can step aside, hold cash, and wait for more normal market conditions.
AI will be a job creator…
Why do you think AI in all its forms is such a great idea? What about the hundreds of millions of people who are going to lose their jobs because of AI? What will happen to them and their families? Will they all have to go on welfare, food stamps, and medical aid because they don’t have jobs anymore? I would love to hear your response.
– Janis L.
Thanks for the question, Janis. It’s a common concern for many.
The nature of work is always changing. Steam power and mechanization automated many of our simple physical tasks during the Industrial Revolution… leading to a dramatic shift in the workplace.
Machines took over many of the grueling jobs humans aren’t well-suited for.
Rather than dooming humans to unemployment, this led to an explosion in productivity that ultimately created many more jobs than it took.
And that’s exactly what’s happening again, today…
There is a tremendous shortage of workers who are trained in artificial intelligence and machine learning. And these jobs are not PhD-level jobs. Many of the most needed positions are “human in the loop” jobs to help train AI to perform better.
In fact, there are nearly 1.2 million AI jobs that companies need to fill right now…
And consider what’s happening at Amazon.
As I told readers the other week, Amazon recently announced that it had added 300,000 new jobs since deploying its AI-powered warehouse robots in 2012.
The reason is simple. Robots and AI made Amazon more efficient and productive. That gave the company the opportunity to grow and innovate, which created new jobs.
It’s true that AI will destroy some jobs. But it will also create far more. As an adult, and a parent, I consider it a personal responsibility to stay engaged, productive, and flexible in my outlook of future employment. The rate of technological change is faster than it has ever been before.
The days of training for one job and performing that job for the next 40 years are over. It will become normal for productive members of society to train for several jobs over the course of their careers as the needs of the labor force change over time due to technological innovation.
And on a global scale, the quality of life will continue to improve. The next billion people are going to be lifted out of poverty over the next 5–10 years. That’s what we are working toward…
Beware the market makers…
Let’s conclude with a different type of question. It doesn’t necessarily have to do with the world of technology. But it’s an important one, nonetheless.
Reading The Near Future Report, you say to use a trailing stop. Fidelity online choices are trailing stop loss in percent or dollars, trailing stop limit in percent or dollars.
– Roscoe R.
Thanks for writing in, Roscoe. I receive this question a lot from readers of my two investment advisory services, The Near Future Report and Exponential Tech Investor. But even if you’re not a subscriber, this is good information to know.
I recommend to my readers that they never put their stop losses in as orders with their online brokers. You can maintain them using your own methods (spreadsheet) and check them regularly. You can also set up your own alerts using TradeStops or Yahoo! Finance.
Or if you’re a subscriber to one of my newsletters, you can wait to hear from us with sell alerts. We will always alert you if you need to act.
I recommend this because anytime a stop loss order is placed with an online broker, it can be seen by market makers. Market makers are companies that provide quotes on buy and sell prices for stocks.
They provide liquidity in stock markets, but they don’t act in investors best interest… They’re there to make a profit any way they can.
They’ll see the stop loss, open the stock when the stock market opens (or pull it down momentarily), stop the investor out, buy those shares at a grossly discounted price to the real market value, and then pull the market price back up to normal trading levels.
I know this sounds criminal, but it happens all the time. I’ve lost count of how many times I’ve seen this happen, and in all honesty, decades ago, I had it happen to me. I learned the hard way. And I don’t want other investors to have it happen to them.
So please remember: Investors should never enter their stop loss prices on their online broker accounts.
That’s all the questions for this week. Remember, if you’d like your question answered, write to me here, and I’ll do my best to get to it next week.
Editor, The Bleeding Edge