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Finance: Tech stocks are still dangerous

Legacy Phuket Gazette

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Finance: Tech stocks are still dangerous | The Thaiger

PHUKET: You would think the lessons learned in the dotcom bubble and subsequent crash would not be so quickly forgotten, but last year’s purchase by Facebook of the free smartphone app Whatsapp for 22 billion dollars was a very good reminder of how quickly we forget.

There is no reason to put your life savings at risk with individual stocks in the modern era of ETFs (exchange traded funds). Unless you are using money with which you can afford to gamble, you should always avoid technology stocks.

Whatsapp charges its users nothing. It has no real defensive competitive advantage other than ‘first mover’s advantage’. Yet, even in that, it really isn’t a first mover. Skype, Line and even Facebook allow you to do everything that Whatsapp does. They all do it for free. How is such a business model worth 22 billion dollars?

I can download the app for free and use it for free. I have never given Whatsapp a penny. Is this starting to sound like the dotcom era yet?

Now, a more important question is, ‘are we near the end of the hysteria over social media and apps?’

A very big warning sign, and a very good example of how dangerous these stocks are, appeared recently with a name you surely have heard. Linkedin is a social media company for professional networking.

Take a quick look at the chart above.

If you are not an expert at chart reading, I will summarize. in one day, the Linkedin share price dropped nearly 50 per cent, and at the time of writing it continues to drop.

Imagine having a sizeable position in this stock because, “social media is the future”.

One could argue that you should have been aware of the risk because its price to earnings ratio was even more out of touch with reality than the rest of the sector, but it’s all relative when we talk about overpriced companies.

Even though everybody knew e-commerce was going to revolutionize the way business is done, the money thrown into the companies in the late nineties and early 2000s went into business models that did not justify investment.

New technology will always be like this. People see the future value of the technology, but cannot distinguish between a good investment or good business model and a bad one.

The difference leaves you exposed to drops like the one you see in the chart. The broad market may crash, but when it recovers you will recover with it. Many of the dotcom businesses that were high flyers no longer exist.

What this would mean is that your investment declines to zero and then doesn’t go on to recover and reach new highs along with the broader market.

Investing in the stock market is risky enough even if you are diversified. There is no reason to add company-specific risk unless you truly have some risk capital to allocate.

Risk capital by definition is money that you can afford to lose in its entirety without your overall financial situation being altered significantly.

Warren Buffet is the best investor in modern times based on the only metric that matters – his cumulative long- term performance.

I don’t think it is a coincidence that he avoids technology stocks. Do yourself a favor and follow his lead.

David Mayes, MBA, resides in Phuket and provides wealth management services to expatriates around the globe, focusing on UK pension transfers. He can be reached at david.m@faramond.com or 085-335 8573. Faramond UK is regulated by the FCA and provides advice on pensions and taxation.

— David Mayes

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Never miss out on future posts by following The Thaiger.

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Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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