Tech investments require a steady hand

The rapid pace of development in new technology places particular demands on those investing in tech companies, says Danske Bank’s senior strategist Lars Skovgaard Andersen.

If you feel that new technology spreads a little faster than in the old days, you are not completely wrong. Television took 22 years to reach 50 million users, the mobile phone 12 years and the internet just 7 years. 50 million people were playing Pokémon Go within a few weeks.

Technology has also turbocharged the growth and dissemination of human knowledge. Until the 1900s, we doubled our knowledge every century, now our knowledge doubles every 13 months.

That the world is constantly changing due to the emergence of new technology is not news, but the pace of change has altered and technology is gradually affecting all our day-to-day routines. Take the smartphone, for example, which in just a few years has become a physical extension of our body as a source of both pleasure and frustration – and, not least, distraction.

 

Fascinating and dangerous

For a tech enthusiast like me, the fast pace of change is an eternal source of fascination, and as a keen investor rapid development offers a steady stream of new and interesting investment opportunities. However, a potential challenge is that we as a society, as individuals – and investors – may fail to recognise the less fortunate side-effects before the damage has already been done.

Lars Skovgaard Andersen

Senior Strategist, Danske Bank

One example is the data we put on the internet. We were so excited we could keep up with old schoolmates, ex-girlfriends or boyfriends and our granny on the other side of the country via Facebook that we forgot to question how our personal data was used and protected. This realisation has since hit like a tidal wave, and Facebook is now a shadow of its former self, with the share price down almost 40% from its peak. Scandals, increased expenses for data protection and more sceptical users have hit the company hard.

Can be quickly sidelined 
Naturally, we should rejoice over the many positive things that technological development gives us. In the health sector, increased data power helps doctors and researchers with treatments and to develop new medicines, while the development of hybrid and electric cars enables us to reduce our consumption of fossil fuels. Investment bank Bank of America Merrill Lynch expects that 42% of all cars will be electric by 2030 – a fantastic prospect that is very much driven by new technology. However, that does not necessarily mean Tesla will be the long-term winner.

The rapid pace of technological development means the repercussions can hit faster and harder than we are used to, just as new technologies and companies can quickly sideline those we celebrate today. This is why it is extremely important that investors do not bet everything on the technologies, companies and phenomena that are shining brightest right now. For example, who is still talking about cryptocurrencies, which less than a year ago were on everyone’s lips?






Don’t be blinded or seduced 

Investing in technology requires a calm and considered approach and an ability not to be blinded or seduced. The more hype there is surrounding particular technologies or companies, the more important it is – roughly speaking – to be cautious and diversify your investments. Of course I have favourites, but they are never allowed to grab all my attention – or all my money. Moreover, a good strategy is often to invest in funds with a broad portfolio of investments within an interesting theme, such as digital security or robots and automation, rather than single-handedly trying to identify the winners of the future – which can be a devilishly hard art to master.

2018 has been characterised by very substantial equity market volatility with, not least, technology companies in the spotlight. In a way, this is also a reminder that – for better or worse – things often move a little faster when it comes to technology. In terms of tech equities in your portfolio, it is therefore vitally important to keep a close eye on your investments, so you do not get lulled by past successes.