A friend of mine made a killing on the stock market by investing in Nintendo shares just as the Nintendo Switch was being released.
In a world where tech companies grow at alarming speeds, the lure of investing in tech stocks is strong. Why wait years for your blue chip stocks to accrue in value when you can ride the wave with shares from Tencent, Facebook, Amazon and company?
Here’s a starter guide on how to start investing tech stocks.
What is FAANG (Facebook, Apple, Amazon, Netflix, Google)?
FAANG consists of five of the biggest tech companies in the world, namely Facebook, Apple, Amazon, Netflix and Google. It’s worth noting, however, that they aren’t the only tech giants you can invest in, with household names like Microsoft and PayPal being excluded from the list.
For those who are used to buying shares on SGX, you might find that investing in FAANG shares will be a bit different.
The five FAANG corporations’ stocks are listed on the Nasdaq stock market. Nasdaq is short for National Association of Securities Dealers Automated Quotations, and is the second biggest stock exchange in the US after the New York Stock Exchange or NYSE.
Here are the Nasdaq ticker symbols for the FAANG companies.
- Facebook Inc – FB
- Apple Inc – AAPL
- Amazon – AMZN
- Netflix – NFLX
- Google – GOOGL
How to buy shares in these big tech companies directly?
In order to trade the above stocks, you will need to use a brokerage that offers access to Nasdaq. Most brokerages that enable you to trade on several markets should have Nasdaq on the list, as it is one of the world’s major stock markets.
Alternatively, if you don’t wish to have to buy stocks in individual companies, many ETFs track big tech companies. Buying ETFs lets you diversify your stock holdings for less money. A FAANG ETF usually offers exposure to FAANG stocks while also adding diversity with other stocks. Usually, for an ETF to be considered a FAANG ETF, it will offer a minimum of 1% exposure to each of the five stocks that make up FAANG.
There are lots of FAANG ETFs on the US market. Here’s a small sampling of what’s available.
- Invesco QQQ (QQQ) on Nasdaq
- iShares Russell 1000 Growth ETF (IWF) on NYSE Arca
- Vanguard Growth ETF (VUG) on NYSE Arca
- iShares S&P 500 Growth ETF (IVW) on NYSE Arca
- Schwab U.U. Large-Ca Growth ETF (SCHG) on NYSE Arca
See a listing of online investment brokerages for investing in an ETF.
What about BAT (Baidu, Alibaba, Tencent?)
China’s tech companies are a force to be reckoned with and their potential for explosive growth has been astonishing so far, although it should be noted that the outlook for the near future is uncertain due to China’s economic slowdown. BAT, consisting of Baidu, Alibaba and Tencent, are the most prominent Chinese tech companies at the moment.
The good news is that BAT shares are traded on big stock exchanges that should be accessible to most people using brokerages offering access to multiple stock exchanges.
Here’s where you can trade BAT stocks:
- Baidu Inc (BIDU) stocks are traded on Nasdaq
- Alibaba Group holding Ltd – ADR (BABA) stocks are traded on NYSE
- Tencent Holdings Ltd (0700) stocks are traded on the Hong Kong Stock Exchange
Top investment brokerages for investing in tech companies
In order to invest in the FAANG and BAT tech companies, you simply need to ensure that the brokerage you’re using offers access to the stock markets on which they are traded, namely Nasdaq (for FAANG and Baidu), NYSE (for Alibaba) and the Hong Kong Stock Exchange (for Tencent).
The best brokerage for you will depend on several factors, but commission fees will surely be one of them. Here are some of the most cost-effective brokerages.
- Saxo Markets – 0.08% trading fee (up to $50,000) and $10 minimum fee
- Maybank Kim Eng – 0.12% trading fee (up to $50,000) and $10 minimum fee
- Philip Securities (POEMS) – 0.12% trading fee (up to $50,000) and $10 minimum fee
- UOB KayHian – 0.12% trading fee (up to $50,000) and $10 minimum fee
- CGS-CIMB Securities – 0.18% trading fee (up to $50,000) and $18 minimum fee
See a listing of online investment brokerages here in Singapore.
Why invest in technology companies?
The tech sector is currently the largest market segment, and is expected to grow even bigger moving forward. Tech now permeates every aspect of our lives as well as every sector in the economy. So, the potential for further growth is still extensive.
Tech is also considered a very fast-moving and volatile sector, with companies rising to prominence seemingly overnight. That means that there is a huge potential to make money by trading tech stocks.
What are the risks of investing in tech?
Just as tech companies can enjoy a dizzying rise, they can become obsolete just as quickly. This volatility can lead to huge losses for inexperienced investors, or those who are not paying attention.
Due to the rapidity with which tech stocks tend to fluctuate, tech industry investors must be prepared to monitor the market, stay abreast of news and not be afraid to boldly cut losses if necessary.
On the whole, tech stocks tend to command higher valuations than other categories of stocks. This is a double-edged sword, as a failing company might still be able to command a high share price until it’s about to go bust.
Another thing to be aware of is that there are more than a few tech companies that have managed to go public even before they are profitable. Whether the company will actually become profitable is anyone’s guess, which means tech share traders need to rely more heavily on guesswork.
All in all, investing in tech stocks can be rewarding if you are prepared to take on a higher degree of risk and have the time and the stomach to monitor the market closely.
Disclaimer: This article has not been reviewed by the MAS. The information in this article is meant for informational purposes only and should not be relied upon as financial advice. Users may wish to approach a financial advisor before relying on any advice provided by the website to make any decision to buy, sell or hold any investment product.
Have you invested in FAANG or BAT stocks? Share your tips, tricks and insights in the comments!
Main image: Niharb via Flickr