Facebook (and others) – risks now apparent, but should you exit tech?

Depending on which news media you read, you are pretty much bound to have heard about record falls in the price of Facebook shares, apparently due to a slowdown in the rate of advertising revenue.

Of course, Facebook and for that matter Google, are in trouble with politicians for behaving “without moral leadership” to quote.  This factor seems not to have much impact on the share prices.  If you have any detailed knowledge of the history of the oil industry (the book to read is “The Prize” by Daniel Yergin), it will all look pretty familiar.   I am surprised President Trump has not started tweeting about anti-trust legislation, something that was prompted by the utterly disreputable behaviour of Standard Oil (the largest remnant of which is now Exxon Mobil).  Later this legislation was used to attack IBM, which in my college days was seen to be so large as to be able to outdo many nation states.  I realise many young folk won’t even have heard of IBM!

As I mentioned in a another recent post about share price swings, these are most dramatic where the share price is justified on the basis of expected future  profits growth, with the psychological overlay of the “fear of missing out” (FOMO).  So if profits growth is at risk and investors are sitting on large paper profits, they will dump shares in an instant.  There is a very old cliché in the investment world that a profits warning is always the first of many.   That default idea also exacerbates sell offs.

So, should investors now pull out of tech funds?  I personally will not.  Some fund mangers will see a fall in prices as a buying opportunity because the cultural change (like the adoption of oil as a fuel for motor vehicles as opposed to use in smelly heaters and lights) is genuine, set in and will not be reversed.  There will be winners and losers, new legislation and even systemic shocks to all the share values in the market, but I have no doubt that IT and media linked together are driving forces in business and profit generation for many years to come.