On Friday afternoon I was speaking to another trader. One who may be more bearish then myself on the current U.S. and global economic situation (if that’s at all possible). Our discussion led us to the conclusion that things had traded irrationally considering the current financial obstacles. The headwinds home and abroad are so great in the next few years, ones money should be very scared. the conversation concluded with an one important point in which we both agreed, the fact that you can’t fight where the money is going. If the money is going into stock, the will go higher; if the money is going into the tech sector, the tech sector will go higher.
Over the past few months in the anticipation of the Facebook IPO investors have been crazy about tech stocks. Look at things like Zynga, Yelp, Apple, and so on. One can make an argument for or against each individual company. Stating that one is overvalued or another is undervalued, one company has more revenues while another has none. What most investors are failing to realize, is valuation doesn’t matter. Most of these companies are new, sleek, and hot. Some of them have ridiculous potential, while others do not. Though they all have one aspect in common, people are buying them. If Curly, Larry, and Moe are buying tech, then you should too. The previous statement may sound uneducated and ignorant, but the fact of the matter is that we are living with a financial markets that are trading a certain way, so play the game by the new rules or get burned.
You can sit there and say that valuations are off, that you don’t want to buy the hype. All these aspects may hold true. What I have learned and you should have learned too over the last quarter, is that if the markets wants to go higher, they will. Headwinds seem to be insignificant and obviously the tech valuation headwinds are insignificant as well. Don’t fight the trend, just ask those who have been buying the VIX in attempt to fight it, they’re broke. Follow the money, because if you don’t, the money trains leaving the station without you.