Tech it: The message of LinkedIn's takeoff

The success of the LinkedIn initial public offer (IPO), where the stock price doubled, may or may not be a bubble.
What matters is that the stock is showing the way forward for investors. Those who have invested in traditional companies are not a happy lot.

The market is in the fourth year of a bear phase with the Sensex and Nifty yet to show positive returns from the peaks seen in early 2008.

The bust from the highs was led by stocks in the resources and infrastructure space with valuations of many stocks halving over a three-and-half-year period.  Investors, as usual, remain wrecked after investing in these sectors at the peak of the bull run.

But those who thought ahead and invested in stocks of companies such as Google, Apple and LinkedIn are smiling. Facebook, which is the success story of the last five years, is not listed yet. The social networking company’s market capitalisation is around $50 billion, a valuation that Infosys took twenty years to reach.

In India, there have not been many success stories such as LinkedIn or Facebook as we are traditionally copiers not innovators.

However, Indians do catch up fast and it will not be long before stocks in the technology space, especially in the internet and mobile technology, start attracting eyeballs.
Investors who have lost money in the bust of 2008 should not lose heart.

However, hoping that the prices of the stocks that went bust will come back to pre-2008 levels is sheer foolhardiness.
Sometimes it is better to look back and check the stock prices that have peaked during booms.

Textile stocks in the mid 1990s and the technology stocks in the late 1990s (Nasdaq is still off 50% from highs seen in early 2000) are clear indicators of what happens to stocks that go bust.
 

Investors who had shifted out of technology stocks and invested in resource stocks in the early 2000’s are much better off than investors who remained invested in technology stocks in the hope that they will get their capital back. Resource stocks were multi-baggers in the market boom of the 2000’s while technology stocks trailed resources by a wide margin.

It is time to shift portfolios. Look for the next leaders and once that is identified shift out from current holdings to the stocks of the future. While I am not pinpointing stocks that will be the next leaders, I can pinpoint the sector that will lead the market. It is definitely the technology sector — more specifically, the internet and mobile space. Technology innovators in every other sphere will also do well, whether in clean energy, manufacturing and service sectors.