Five years ago, NASDAQ peaked above 5000. It was heady times for those of us in the tech industry. Engineers were wooed with higher and higher salaries, tons of stock options and sign-on bonuses. Not many of us foresaw the tech-wreck just ahead and thought the good times will last forever. Five years later and (slightly) wiser for the experience, here are my lessons from the bubble:
- Diversify. Diversify. Diversify. Ten tech mutual funds, my company’s stock and a job in the tech sector is asking for trouble.
- Think asset allocation. Assets include equities: US, Canada, EAFE, Emerging Markets, small-cap, mid-cap, large-cap, value, growth etc., bonds, cash, real estate, income trusts, precious metals, venture capital etc. Rebalance regularly to stick to original asset allocation.
- Don’t chase performance. Stocks should be valued based on future prospects, not past results. The first stock I purchased was JDS Uniphase. Enough said.
- Take all predictions with a (big) grain of salt. I remember reading a research report predicting that sales of optical communications equipment would increase 25% each year for 25 years!
- Don’t tie up a majority of your net worth in your employee. Sell in-the-money options as soon as they vest, turn around and sell any stock purchase plan shares immediately. If things go sour for your employee, you might lose your job and have losses in your portfolio.
- Don’t catch falling knives. There is a lot of truth to the saying “the trend is your friend”. A falling stock is likely to keep falling.