A Techie's Guide to Investing in Tech Stocks

by Howard Fosdick

Updated: 2023  Originally published in OSNews

We’ve all had the idea, even if we’ve never pursued it. We just know we could make money in the stock market, based on our tech knowledge. We live and breathe tech. Why not profit from it?

This article tells where to start. First, a big disclaimer. You may be able to use your knowledge of the tech industry to prosper in the stock market — but only if you spend some time and do careful research. Investing risks your money! If you don’t do your homework, you’re just trusting to luck.

With that said, here’s where to start…

Start Small

New to investing? Treat it just like a new programming project. Start small. Minimize your risk. Learn as you go. If you really have valuable insights you can profit from them just as well when you know a lot more, rather than taking big risks before you’ve educated yourself. Start by reading some of the free online investing tutorials. Here's a list to start you off.

Get All the Info You Can

It’s amazing but true. People will pump thousands of dollars into a stock they’ve spent less time researching than the TV or computer they buy for a few hundred bucks. Which risks more?

If you invest in stocks you’ll be competing with full-time money managers with big research staffs and lots of resources. Don’t treat it casually unless that’s how you always treat your money. Combine in-depth research with your tech insights for the best chance of profits.

These websites provide fundamental investing information and stock research:

—Stock Research Sites—

Yahoo Finance Stock Research MarketWatch
Morningstar The Motley Fool
Investopedia WikiWealth

You can pay for online services like Motley Fool Premium Advice and Morningstar Premium Membership but I’m not sure they’re worth it given all the information available freely on the web.

On the other hand, if a couple hundred dollar per year subscription helps you make a single better investment decision, it might pay for itself. The key is that you spend the time and effort required to research a stock before you buy it, however you go about that.

Forums offer interaction with fellow investors. They're great for asking questions and educating yourself.

But be aware that you’ll run into everybody there, from experts to trolls. You may also run across front-runners (people who try to convince you to buy a stock after they’ve bought it, to pump up the price):

—Investing Forums—

Motley Fool Forum Morningstar Forums
(mutual fund orientation)
AI Stock Market
(applies AI techniques)

Read Annual Reports … and Financials

You don’t invest in a product, you invest in a company. Technical knowledge alone is not enough for successful investing.

Every publicly-held company is required to file an annual report. Since these reports are legally required to contain certain information — like competitive threats, company finances, and stock risks — they’re an essential source of information. If you haven’t read the annual report prior to investing in a company, you haven’t done your homework.

Before you invest in a company you must analyze its financials, its financial statistics. You need to understand statistics like forward P/E, TTM P/E, yield, PEG, p/s, p/b, cash flow, debt, ROE, debt-to-equity, market cap, and a lot more.

If you aren’t comfortable reading financial statements, you should learn before investing. Start here and here.

Don’t Substitute Tech Bigotry for Judgment

Some techies make the mistake of thinking that since they love a particular technology, everybody will. You must do your homework and then objectively weigh what you’ve learned against your tech knowledge.

I have a friend who believed Linux would take over the laptop/desktop computer market because he hated Microsoft. Though he was fervently convinced of his views, computer purchasers disagreed.

With stocks you’re predicting what others will buy. Just because you hold a particular view doesn’t mean that everyone else will. No matter how “right” you may be.

The fact is, the best product doesn’t always win in the marketplace. Other factors are at play. For example: advertising, marketing plans, competitor's responses, and a lot more.

Don’t let emotion drive your investing. Base your buys and sells on facts, knowledge, and research.

Gains and Losses are Relative

To say you made money on a stock means little. Perhaps if you had invested that money elsewhere you would have made more. The same goes for losses. Whatever you make or lose is relative to alternative investments you might have bought instead. So you need to track how well you do as an investor.

Compare your track record to prominent benchmarks like the S&P 500 or Nasdaq. Or to a tech stock benchmark like the Dow Jones US Technology Index, or one of the several other tech benchmarks.

After the 2008 financial collapse, I had a friend who was furious at his mutual fund because it declined 25% . If he understood investing better, he would have been happy. The average decline for his fund type during that period was about 40%. You get the idea.

Another point about gains and losses: If your stock goes down 10%, it has to go back up more than 10% for you to break even. For example, say your stock is worth $100. It goes down 10% so you now have $90. Then it goes back up 10%. You end up with $99 (not $100). Keep this in mind if you measure your results by percentage gains and losses.

And don’t forget to subtract trading costs from your numbers!

The Larger Market Overshadows Everything

Many investors learned this lesson the hard way during the dot com stock collapse in 2000-2001. You may have made the smartest tech investing decision ever, but if the market as a whole turns south, your stock likely will too. Very, very few stocks successfully fight an overall market decline.

Consider your investing time horizon. If the market goes down and drags your tech stock with it, can you wait long enough for the market to trend up again? Can your company survive the downturn? Profitable investing means thinking about much more than one company. You’ve got to consider the market as a whole (what investors call the macro-economic factors).

For example, it took years for Oracle’s stock to recover from the dot-com bubble collapse. Even though Oracle Corp had done nothing wrong. Simply making a good bet on Oracle would not have been enough to profit during that timeframe. You had to account for the overall market direction, too.

Another example: in 1997 southeast Asian stock markets collapsed. Oracle stock dived by a third in response. But Oracle Corp only made a small percent of their profits in SE Asia. As they often do, the markets over-reacted and unduly punished a stock. If you were savvy enough to spot this over-reaction and bought Oracle right after the 1997 debacle, you made a big profit in a year or two. The key was the ability to follow one stock and map its movement onto overall macro-economic conditions.

Buy Low, Sell High

This simple rule is as basic as it gets. Yet people violate it all the time. It’s easy to buy a stock when it’s up because this generates lots of media attention. But you have to make sure you buy at a lower point than you sell — which is hard to do if you bought a stock after everyone got excited about its rise.

Momentum investors buy a stock while it’s rising and then sell it near its market top. It can be a profitable approach, but only if you're certain to get out before the top is reached -- a difficult proposition.

Growth investors look for stocks they expect to grow over a period of time (along with their profits). These companies create value through their growing sales and earnings, like Google or Amazon.

Value investors look for an unfairly beaten-down stock and profit during its comeback. For example, Microsoft, Apple, and IBM have all gone through periods when the market didn't favor them. If you were savvy enough to buy them during their dips, you profited during their comebacks.

Whatever investing approach you choose, you only make money if you sell a stock for more than you paid for it.

The one exception might be if you make enough in dividends (money companies pay to their shareholders quarterly out of their profits). Tech stocks that are in their growth phase typically pay little to no dividends — eg, Google, Facebook, and Amazon. More mature tech stocks often pay higher quarterly dividends — eg, Microsoft, Intel, and IBM. But this is a general rule that may not apply in any specific situation.

Track Your Gains and Losses

Figuring out whether you made or lost money on a stock depends on even more than your purchase and selling prices, as adjusted by dividends. You've got to account for a whole range of factors to accurately measure your profit or loss:

  • Purchase price
  • Selling price
  • Add in any dividends to your potential gains
  • Subtract trading costs
  • Subtract inflation (if you hold a stock over a significant period)
  • Subtract taxes on any profits
  • Account for potential beneficial tax adjustments or write-offs for losses

Have a Sell Discipline

Knowing when to sell is as important as knowing what to buy and when. This can be hard when your stock is down, because all of us find it hard to admit a mistake. Nobody wants to sell a loser they were sure was a winner. Some people even “double down” and buy more of a favorite stock while it declines.

But that can be dangerous: should the stock continue declining, you’ve now maximized your losses! Decide when and under what conditions you’ll sell … before you buy in.

Contrarians Make Money

Many investors do their homework but follow the herd. In investing you have to anticipate where the herd will go next.

Often this means going against the conventional wisdom — buying a stock that’s at a low while everyone beats up on it. Or betting on a new venture everyone else thinks will fail. You have to have real go-it-alone guts to make money on stocks. It’s the contrarians who are right who make the most.

Don’t Invest In Your Employer

Remember the Enron scandal? Lots of unlucky Enron employees lost both their job and their retirement investments when Enron collapsed. Diversify. As a general rule, don’t invest in the stock of the company you work for.

There's one big exception. If your company’s stock investment plan matches your contribution with its own, this might be sufficient to counter-balance the risk. Just consider the risks of non-diversification before you leap.

Understand Taxes

The true measure of what you make from your investments is an after-tax number.

Before you invest, you should understand long- versus short- term capital gains, how to balance gains with losses, the wash rules, qualified versus unqualified dividends, how the foreign tax credit affects dividend income, and more. Tax tutorials to get you started are here and here.

Start Smart

I've known many techies with astute investing insights they've acquired through their profession or from their jobs. But they didn't necessarily benefit financially because they didn't learn investing basics before jumping into the stock market. Hopefully these tips will prove useful to you.


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