Our concern about high tech stocks has been that they seem overvalued as the bull market ages. The market seems to have taken notice of this concern as the FANG stocks corrected and have not recovered their losses. And now a Facebook data breach has scared the market. US News reports that Facebook and other tech stocks are falling.
A sharp loss for Facebook is dragging technology companies lower Monday as U.S. stock indexes skid. The social media company is facing new criticism related to privacy issues following reports a data mining firm working for the Trump campaign improperly obtained and then kept data on tens of millions of users. The stock is on pace for its biggest loss since 2012.
How far will tech stocks fall? Is it time to rebalance your investment portfolio with more weight given to value investments and less to growth?
The unique financial conditions of the last several years have been ideal for high tech growth stocks, the FANG group especially. But, now that conditions are changing, growth stocks are overpriced and at risk for a major correction. The better choice for many investors is to move into value stocks and other investments.
Or is it time to get out of the high tech sector while there is still time? There are a couple of issues that bear consideration in this regard. History buffs will remember that a bit more than a century ago there were a handful of companies that dominated American industry. Standard Oil was the most prominent as it controlled 90% of the oil and natural gas industry. But railroads, meat packing, steel, and even tobacco were controlled by a few. The point of breaking up these monopolies was to bring competition back into the market place and to reduce prices. The end result was that the great business empires built over the previous years were broken up during the Roosevelt and Taft administrations. It took another 80 years to see the Bell Telephone company monopoly broken up by the courts in the 1980s. An issue for today’s tech giants is that as they become too large and too controlling they risk being broken up and that would be a factor in how fall tech might fall.
Big Data and Big Brother
A current issue with Facebook is that they have allowed a huge data breach. According to the US News article the personal profiles of more than 50,000,000 Facebook users were used without the users’ permission. This was done by an outside research firm working to elect Donald Trump. It has been said that the most influential person on the planet is Mark Zuckerberg who founded Facebook and is by far the largest shareholder at about 29%. In the end Facebook may be broken up or severely regulated simply because of its power in the world of social media and the threat that it could be to governments and societies across the globe. In regard to how far tech stocks might fall it might be instructive to look at the breakup of “Ma Bell.” The AT&T system kept the company’s legacy products, did not do all that well and was eventually taken over. With the regional “baby bells,” some prospered and some were taken over. The same sort of risk might come out of a breakup of today’s tech giants.