{"id":49755,"date":"2014-04-14T21:42:39","date_gmt":"2014-04-15T01:42:39","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=49755"},"modified":"2014-04-15T06:44:15","modified_gmt":"2014-04-15T10:44:15","slug":"no-tech-stock-bubble-here","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/04\/14\/no-tech-stock-bubble-here\/","title":{"rendered":"No Tech Stock Bubble Here"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a><\/p>\n

Since the NASDAQ fell 7.4% in three weeks, many headlines are suggesting this is the sign that tech stocks<\/strong> are in a bubble.<\/p>\n

Time<\/em> magazine declared ‘Every reason you should be worried about a destructive tech bubble.<\/em>’<\/p>\n

An expert talking to Bloomberg<\/em> is convinced the technology sector<\/a> is frothy, ‘Shiller: Looks and feels like a bubble in Tech.<\/em>’<\/p>\n

And Bloomberg Businessweek<\/em> warns that it’s not time to party like its 1999, ‘Silicon Valley Hears Echoes of 1999.<\/em>’<\/p>\n

The thing is, the NASDAQ overall is down only 3.7% since the start of the year. However, compared to this time last year, it’s still up a massive 21.39%…<\/p>\n

As Kris noted in his World War D speech<\/a> two weeks ago, many contrarian investors are too busy looking for a bubble or market crash. Rather than focusing on good investing opportunities, they focus on trying to avoid a bubble.<\/p>\n

This reluctance means they miss on investment ideas. <\/p>\n

Kris called it paralysis by analysis.<\/p>\n

Like it or not, a share’s price at any given time is what the market thinks its worth.<\/p>\n

There’s no denying tech stocks are very hot right now<\/a>. Even some of the two most recently cloud based stocks have seen their prices soften a little.<\/p>\n

Take Amber Road [NYSE:AMBR]<\/strong> for example. Amber Road made its market debut at US$16.95, which was well above the IPO price of US$13. Yet, in three weeks, it dipped 15% to US$14.41.<\/p>\n

Another recent had-to-have cloud company was Rubicon Project [NYSE:RUBI]<\/strong>. It’s initial price was quoted from US$15-$17. It commenced trading at US$21.02, only to fall 2% since then.<\/p>\n

Initial trading may have seen some speculative investing in these companies, but this doesn’t mean there’s a bubble brewing in the NASDAQ.<\/p>\n

No Tech Bubble Here<\/h2>\n<\/p>\n

The NASDAQ isn’t in a bubble.<\/p>\n

Let me explain.<\/p>\n

It’s still trading 26% below its May 2000 peak of 5,408.<\/p>\n

And unlike 1999 and 2000, there are fewer initial public offerings (IPOs). During this time, 794 tech stocks went public on either the NASDAQ or the New York Stock Exchange. <\/p>\n

Compare that to 2012 and 2013. As the NASDAQ slowly marched towards 4,000 again (the first time in 14 years) only 86 tech firms listed.<\/p>\n

And although I declared this year, ‘the year of the cloud’ for stock listings in the US, so far only 10 companies have begun trading this in 2014.<\/p>\n

It may seem that the valuations of tech companies<\/strong> are out of hand. Adding to the perhaps irrational exuberance when it comes to buying of tech stocks. But that’s not the case either. <\/p>\n

During 2012 and 2013, over US$30 billion was invested in new public companies. However, that’s nothing compared to the US$82 billion invested in 1999 and 2000.<\/p>\n

This year, barely US$1.6 billion in tech stocks have listed.<\/p>\n

In spite of this, over at Reuters<\/a>, they reckon the sign of a bubble brewing is the imbalance of voting rights of shareholders.<\/p>\n

\n

‘The best description of the stock being harked in this way is “coattails equity”. It offers little beyond a chance to tag along with entrepreneurs from Wall Street, Silicon Valley and China. Buyers of shares in IPOs such as those of Box, Grubhub, Moelis & Co, Virtu Financial and Weibo – and probably the $100 billion-plus giant Alibaba – must give up the rights that have traditionally accompanied the ownership of common shares, like a representative voice in corporate decisions.<\/em>’<\/p>\n<\/blockquote>\n

What Reuters mean, is a dual class share system.<\/p>\n

Now this isn’t actually uncommon. Many companies, especially tech ones have often favoured Class A and Class B shares to ensure control remains with the founders of a company. <\/p>\n

However, the frequency which companies are choosing this option is changing. Rather than happening occasionally, most new tech firms listing are going with a dual class system.  <\/p>\n

Take Box Inc’s recent filing to list. It’s offering two classes of shares, Class A and class B. In this case, Class A shareholders will get one vote per share, and Class B shareholders will get 10 votes per share.<\/p>\n

Google is the same. The Class B shares have ten times the voting rights of Class A shareholders.<\/p>\n

Recently, Google [NASDAQ:GOOGL]<\/strong> they spilt the stock and created another non-voting Class C stock [NASDAQ: GOOG]<\/strong>. <\/p>\n

The short of it is, this spilt was all about giving the Google founders, Sergey Brin and Larry Page a greater portion of control over its company.<\/p>\n

Facebook [NASDAQ:FB]<\/strong> did the same thing with its IPO.  The class system was skewed in Mark Zuckerberg’s favour.<\/p>\n

It appears that the founders of the companies want to tap the market for funds, without handing over control. This isn’t a bad thing though.<\/p>\n

When you buy tech stocks, a lot of the time you’re buying into the founder’s idea.<\/p>\n

Becoming a shareholder means in one way, you support the founder, creator or investor of the technology<\/strong>. In addition, it means that you believe in their dream to take the company one step further with the technology<\/a> or the product.<\/p>\n

Reuters may think this further sign of a bubble. I disagree.<\/p>\n

It’s more a case of company founders keeping control of their project.<\/p>\n

After all, if you don’t like the direction a firm is taking, you can always sell your stake in it.<\/p>\n

Shae Smith+<\/a><\/strong><\/p>\n

PS.<\/strong> If you haven’t seen technology analyst Sam Volkering’s latest report, I recommend you watch it here<\/a>. In it, he explains why he believes the tech sector<\/strong> is the best place to invest your money today, and reveals a little about the four companies he’s backing for big gains over the next three years. Click here to watch it now<\/a>.<\/p>\n<\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Since the NASDAQ fell 7.4% in three weeks, many headlines are suggesting this is the sign that tech stocks are in a bubble. Time magazine declared ‘Every reason you should be worried about a destructive tech bubble.’ An expert talking to Bloomberg is convinced the technology sector is frothy, ‘Shiller: Looks and feels … <\/p>\n

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