How to react to the fall in technological actions

What's going on?

Last week, according to Bloomberg, Elon Musk lost $25 billion. Jeff Bezos, for his part, saw his fortune shrink by more than $20 billion, while Mark Zuckerberg experienced a contraction of $10.4 billion. The reason? The fear of a rate hike by the US Federal Reserve (FED).

Experts call it a “technological crash”, since the companies linked to this area have been the most affected. The Nasdaq-100, an index that follows the first hundred companies listed on this stock market, has fallen 14% in 2022, while the S&P has fallen 9%.

“Technology stocks generally have a higher sensitivity to market movements. In recent years they have had very good stock market performances and are currently trading at relatively higher multiples compared to other sectors”, says Hugo Aravena, president of CFA Society Chile.

It's not time to sell

When these types of events occur, many people decide to sell shares or withdraw money from their mutual funds. However, most experts warn that this is not a good idea. Because? Because by withdrawing money you will miss the opportunity to take advantage of the rebound, that is, the moment when the market adjusts again.

“For now, it is not recommended to buy shares, since the falls are expected to continue in the coming days. Probably, during the month of February there will be good entry levels”, says Carlos Quezada, a senior trader at Libertex.

On the other hand, Francisco Verdugo, an executive at DVA Capital, points out: “Anyone who withdraws their investments now is because their portfolio was not well structured. If you were investing for the short term and you do not have time to wait for the rebound, perhaps it would be time to sell and that loss is the learning so that it never happens to you again.

“Falls like the ones we are experiencing can serve to rethink our investment strategy and ask ourselves about the level of risk we are willing to assume in our investments. It is important to bear in mind that when investing in the long term, the search for better returns comes hand in hand with an increase in risk," says Felipe Sarovic, portfolio manager at SoyFocus.

José Raúl Godoy, local branch manager of XTB Chile, says that "it is too early to think about withdrawing investments. So far we are witnessing a strong correction in the market in general and indeed the technology sector is the most affected at the moment. We are likely to see a recovery as the US Federal Reserve delivers a clear roadmap for monetary policy later this year."

Might keep crashing

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Various voices on Wall Street say that the fall could be accentuated in the coming weeks.

“It is difficult to estimate how much, it depends on the information that appears. Likewise, with so many days off, other types of parameters that involve a decision begin to appear, such as the uncertainty factor”, indicates Jorge Tolosa, Variable Income operator at Vector Capital.

For his part, Quezada says that "the projection is bearish for the first quarter of the year, so the recommendation is not to buy shares in this sector."

Executioner goes further: “The markets could fall 20, 30 or 40% without a problem. It is not the central scenario, but they are things that can happen. That is why it is so important to have a diversified and well-structured portfolio, since the night is going to come at some point and the problem is that we don't know when”.

Take advantage of the fall?

When the market goes down, it opens up an opportunity for investors to “buy” cheaper and generate short-term returns. Although it is a risky measure - especially in times of high volatility - it is intended for experienced investors. What to buy?

Carlos Quezada points out that “a good option would be to buy VIX, known as the market fear index, which has grown 96% in 2022. We also see an upward trend for gold since the beginning of this year. It could hit $1,900 in February.”

“Technology is usually a big industry but it assumes a long-term planning horizon and an intention to stay in the title. It continues to be an opportunity even though prices have fallen”, says Héctor Osorio, economist and partner at PKF Chile.

“For those who are trading and buying technology stocks, they must follow trends and prioritize short-term movements, which is why it is important to take advantage of rapid and downward selling movements,” Palacios clarifies.

On the other hand, Verdugo affirms that it is possible to continue opting for this category. However, he advises betting on other industries: “Companies in the world of technology are going to continue to revolutionize the world and have tremendous businesses in the future, however technology should only be part of the portfolio. Firms from the world of health, consumption and finance must complement the strategy”.