Tech Investing Basics: Ultimate Beginner’s Guide to Investing in Tech Stocks

You may be wondering where to invest your hard-earned money to get better returns. With the technology industry evolving at a constant pace, this is one area that you can consider to invest. There are plenty of startups in this particular domain and new ones are arising on a daily basis. Some are expected to do exceptionally well while others could flounder. Hence, you are to take a cautious approach, especially when considering investing in tech stocks. Well-researched decisions will help fetch amazing returns.

Investing in Tech Stocks – Get to know the industry

Before you start your investment in tech stocks, you need to first understand how this industry functions. Understand what stocks form this category and what is the role played by such companies. Tech company is likely to refer to several aspects. There are software providers, those responsible to write codes allowing smooth functioning of computer programs. One of the most reliable and biggest software stocks is Microsoft, while other major players are Symantec and Intuit.

Also are present hardware companies that you can consider investing like Cisco and Rezar. Both are worth investing and can offer better returns.

You can also consider investing in telecommunications. Major internet service providers and phone networks belong to this category. Relatively new entities like Comcast and Verizon dominate this tech sector.

Next to consider is information providers, companies responsible to compile information online. The data compiled is then accessed by the public. Companies in this tech sector are experiencing a boom period, when tech investing is considered. You can invest in companies like Facebook, Yahoo and Google, etc.

Tips to make the right investment decision

You need to consider the following to determine your investment avenue.

1. Think ahead: It is not necessary that long-term returns can be enjoyed only from a company that is currently making profits. Companies like Google and Microsoft are already making huge profits for their investors. But, they may not continue to grow. However, they can act as your primary investment. Such stocks are quite expensive and also not worth for long-term investments. Better choose companies that are rising. But a company witnessing increased earnings does not necessarily guarantee future increase. This can rather be an obsolescence risk. There are chances of the product getting obsolete in the near future. So practice extreme precaution when making investments in tech stocks.

2. Understand relevant metrics: Warren Buffet had coined a term ‘Economic Moat’. It is basically the competitive advantage enjoyed by a specific company over its competitors. There are four terms concerning tech stocks.

3. Cost of switching: It is quite natural for a company to lock in their customers with some contracts. However, high-switching cost is not likely to entice customers long-term.

4. Network effects: It refers to a specific company relying on others. For example, social media site. In this case, network is crucial since the service helps connect with others. But if people are not connected with you, then it is not possible.

5. Production cost: Companies having the capability to deliver a product of higher or equal value for less cost when compared to their competitors.

6. Intangible assets: It can be patents, trademarks and brand value of the company.

7. Develop a portfolio: Create a strong portfolio with diverse stocks. Consider investing in each stock. A portfolio with a strong number is one with 6 to 8 different stocks.

You can invest in larger companies like Microsoft and Google. You will not lose your money with these companies. However, you should consult a professional to know the right way to investing in tech stocks and make huge profits.