Lessons from 2022’s Tech Stock Collapse

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The 2022 tech stock collapse has taught investors and traders many invaluable lessons. Here’s a blog post discussing them in detail.

You’re probably already aware that 2022 hasn’t been a good year for the stock market. But tech stocks have particularly underperformed this year, struggling due to numerous events worldwide. Most would assume that tech giants like META, Apple, and Microsoft would be safe from such external influences. However, the reality is that these corporations haven’t been spared either.

 

Sources show the Morningstar US Technology Sector Index has declined nearly 30 percent this year. Unfortunately, nearly half of 2022 remains for the index to decline further. Household names within the tech sphere have witnessed significant declines - META’s stock dropped by 44 percent while Netflix nosedived by a staggering 73 percent. Likewise, Microsoft, Apple, Nvidia, and Salesforce have also heavily declined.

 

These losses have sent investors into a frenzy, forcing them to scramble as they decide the best possible course of action. However, investors and traders must remember some things before making drastic decisions. Technology stocks have witnessed historic declines this year, but these declines come off the back of several good years. Tech stocks boomed during 2019, 2020, and 2021. If there’s one thing investors know about the stock market, it’s that stocks are inherently volatile. Their price might appreciate, but they’ll also eventually decline.

Lessons Learned from the 2022 Tech Stock Collapse

The 2022 tech stock collapse has taught us many invaluable lessons. Here are some investors and traders must recognize:

Big Losses Generally Follow Big Gains

It’s no secret that big losses generally follow big gains. After all, the market must correct itself eventually. This year’s stock performance has been painful for many investors because it follows strong years of stock performance in 2019, 2020, and 2021. While it’s true that technology stocks have severely declined, there’s an observable trend that many shrewd investors and traders have noticed.

 

Technology stocks tend to hit all-time high peaks and then severely decline. This pattern was first observed in 2000 when tech stocks hit their all-time peak. However, the market soon declined 138 days later, causing the tech sector to fall by 16.5 percent. As a result, it’s safe to say that tanking tech stock prices aren’t something new or unusual.

Focus on Long-Term Performance

Tech stocks also differ from other stocks because they focus on long-term potential and growth. Investors typically purchase tech stock because they expect the company to make significant advances in the future. As a result, most traders and investors evaluate future valuations and growth rates when assessing tech stocks.

 

As a result, you’ll see that most people invested in tech stocks are in it for the long haul. Investors who invested in these stocks before the tech stock overvaluation in 2021 likely made sizable profits despite tech stocks declining this year. For instance, an investor who purchased Nvidia stock in 2019 has still nearly quadrupled their initial investment despite the stock’s price dipping.  

Don’t Fight the Federal Reserve

Changes in market trends often require a catalyst. The Federal Reserve’s move to aggressively raise interest rates to battle inflation has affected the stock market. Tech stocks are often most vulnerable to such changes because their stock valuations are based on estimating the company’s present value using future earnings.
 

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