Hi Jeremy, big fan of PFC, thank you for so many great posts.
I have a quick question:
What do you think of sector specific S&P ETFs, for example iShares S&P information technology?
This has roughly tripled in value over the last five years. Tech is likely to remain important and influential in the modern world, so does this seem likely a profitable option?
Thanks!
Hey @Leonardo!
I don’t like them. Here’s the thing: People are really good at telling what did good the last 5 years, as you adeptly pointed out that the IT sector has gone crazy the last five years. But what’s harder to know is what’s going to happen the next 5 years.
And I know, I know. Tech is still going to be important the next 5 years. But everyone else knows that too. So what has happened over the last 5 years is that prices got bid up and up and up to SUCH EXTREME HIGHS that prices will only maintain if the tech sector performs SO FABULOUSLY that it MEETS those impossibly high expectations. And if you BUY at those outrageous expectations prices and expect it to GO UP EVEN MORE, then you’re betting it’s going to OUTPERFORM the already impossibly high expectations.
Basically, all that stuff is “priced in” to the market. For every smart, educated person putting their money on the line that tech is going up more, some smart educated person is betting that it’s priced too high and they’ll get more growth elsewhere.
And the truth is no one knows. So the way to maximize your investment is to buy ALL the sectors, which also happens to be simpler, cheaper and less volatile.
Here’s a post on sector ETFs: