What does the overnight drop on the Dow really tell us?

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When I was a producer on the Nine Network’s prestigious Business Sunday program a high profile stockbroker told me something very valuable.

“When you see the mainstream media doing stories on how people with no experience are making money out of the market, then it [the market] has already turned. They just don’t know it yet.”

In the past week, I have seen several stories about people with no prior experience making all sorts of claims about profits. One woman even said it was easier than she thought.

I have been investing for several years and trust me or talk to my wife. It ain’t easy.

WHAT DOES THIS TELL US

There are two primary schools of thought about what could happen next.

The overnight drop and the number of first-timers in the market probably points towards the less pleasant one.

According to an ASIC report on share trading during COVID-19, the average daily securities market turnover by retail brokers increased from $1.6 billion in the benchmark period to $3.3 billion in the focus period.

The report explained that 140,000 new investors signed up to brokers between 24 February and 3 April.

That’s an average of 4,675 new accounts a day.

That’s an awful lot in any one’s language.

It does seem possible that we are headed for a decline to the basement and it could either be a slow one or the cable on the elevator could break.

THE CASE FOR TECHNOLOGY STOCKS

A recession usually starts with some sort of shock. In this case, its the pandemic and that sends the stock market into a dive, sales drop and jobs go.

The stock market is based on future earnings and the anticipated profits of many companies are, rightly, expected to go down.

But while the companies that are badly run and have too much debt can collapse, many others survive.

WE ARE ENTERING A PERIOD OF TIGHT MARGINS AND TECHNOLOGY SOLUTIONS

In the face of fewer sales, a business needs to do one of two things.

Cut costs or improve the efficiency of production.

In other words, if you can achieve this, you may be selling less but you are making a bit more on each remaining sale which helps you survive till things pick up.

Normally, however, this is very difficult to achieve but today the right technology exists that can and will play a big role here.

For example, one ASX listed company offers manufacturing customers a process that delivers a 100% increase in production time and an 80 % decrease in costs associated with the process it offers.

Accepting and adopting anything that disrupts our daily lives usually takes a long time because few of us like change.

But eventually, the compelling reasons for adopting new and disruptive technology become so great you can’t ignore them and if you do so for too long, you run the risk of a competitor getting in first.

So which emerging technology companies should do well in the next year or so?

The ones that are built around a proven disruptive technology which offers large scale improvements in quality, cost and time.

Most importantly, a technology that has not just shown that it works, but a technology that has enough sales revenue to show people have actually started buying it.

There’s no better sales pitch than faster cheaper and better than the competition and if you can find the ones that are already on the journey to profitability.