Your “September Sell-Off” Action Plan

It’s been a brutal start to September for the technology sector.

Firms are still innovating America’s future.

Groundbreaking patents are still being filed.

Engineers are still building better algorithms, robots, laser diodes, chips and microprocessors.

Venture capitals (VCs) are still pouring billions into emerging companies.

Yet the tech-heavy Nasdaq is down over a thousand points since the month began.

The sell-off is indiscriminate, too, hitting all industries — even the industries that had been driving the COVID-19 recovery rally, like artificial intelligence and biotechnology.

Although small-cap stocks, represented by the Russell 2000 Index, are weathering the storm a bit better than their larger-cap peers…

A handful of technology’s shining small caps — such as Rackspace Technology (RXT)Zuora (ZUO) and PagerDuty (PD) — have gotten walloped.

Given the prevailing volatility, it’s prudent to address the question on everyone’s mind…

Is the Nasdaq’s recent purge the result of some good-natured profit-taking?…

Or is something more sinister lurking beneath the surface?

When it comes to technology investing, addressing sell-offs is pretty straightforward…

All we have to do is look at the activity of VCs, as they serve as a perfect proxy for the health of the technology sector.

As I said in my premium publication, Future Wealth

Futurism is the science of predicting breakthrough technologies. It’s underpinned by the informed decisions of VCs, whose investments are well timed through the various stages of technological growth. In their simplest form, these growth stages can be likened to infancy, adolescence and adulthood.

At the angel-and-seed stage, a technology is nothing more than an idea. At the early VC stage, a technology is raw and unrefined — yet initial testing and sales begin. At the late VC stage, a technology is fully mature and ready to scale. VCs also begin to finance their exits at this stage — through activities like mergers, acquisitions and IPOs. This is our cue to invest in companies, industries, sectors, commodities — or whatever else a breakthrough technology touches.

I can’t stress the importance of VCs enough.

Take Amazon, for example.

Amazon began in July 1995 with $245,573 in funding from Jeff Bezos’ parents.

Six months later, Amazon completed an angel/seed round of financing for $981,000.

In the summer of 1996, Amazon attracted $8 million in early-stage VC funding from big-time firms like Kleiner Perkins Caufield & Byers, Quattro Financial Advisors and Princeton Capital Management.

Amazon then IPO’d in May 1997, fetching a valuation of $381 million.

Nearly a quarter century later, Amazon’s 219,500% gain is part of investing folklore.

But would Amazon even exist without the role VCs played in funding early growth?

Probably not.

The takeaway here is clear…

We’re wise to let VCs lead the way.

So during the prevailing sell-off, I’ve been tracking VC activity very closely.

If VCs recoil into their shells, we must take their defensive posture seriously… which would mean trimming our exposure to high-growth technology stocks.

Conversely, if VCs are eagerly funding emerging technologies, with investment amounts expanding on a quarter-to-quarter basis… we must regard that as a bullish signal.

I’m happy to report it’s the latter.

Not every industry within the technology sector is getting love from VCs. But proven breakthrough industries — AI, IoT, Big Data, autonomous vehicles, 5G and HealthTech — continue to attract plenty of capital.

Consider: Three short weeks ago, Goldman Sachs announced plans to raise a venture and growth fund worth around $2 billion, which would instantly rank among the largest such funds in the world and profoundly raise Goldman’s profile in the lucrative world of technology investing.

Goldman’s ambitious plans serve as a perfect example of “VCs eagerly funding emerging technologies.”

So instead of panicking, I suggest treating the sell-off as an opportunity to add fantastic stocks to your portfolio at discounted prices. In fact, think of the sell-off as the stock market having a post-Labor Day sale.

Onward and upward,

robert

Robert Williams

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Robert Williams

After nearly 20 years in the trenches of high finance, Robert has joined St. Paul Research to assume the role of Chief Futurist. Robert cut his teeth as an analyst for one of the most revered and prestigious medical institutions on Earth, whose endowment is valued at $4.3 billion. From there, Robert became the lead...

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