Do you remember what you were doing 34 years ago?
I know that's a long time to think back. That is if you were even born then.
For me, though, August 1986 was a particularly memorable period. The end of the month saw me start my first year at the University of Michigan. It was an exciting time that ushered in new friends, new knowledge, and eventually new career paths.
Clearly there was a lot going on in my life that month. And as a 17-year-old uni student, I didn't have an extra dollar to my name to even contemplate investing in the share market. So I would have had no clue that the S&P 500 Index (INDEXSP: .INX) had just posted a stellar month of share price gains.
1986, in fact, was such a good August for the top 500 listed US shares that it took 34 years for another August to roll around which beat the S&P 500's performance that year.
Yes, I'm talking about last month, which saw the index gain 7.0%.
And it's not just tech sharess handing investors big share price gains. Indeed, the best performer on the S&P 500 in August was Royal Caribbean Cruises Ltd (NYSE: RCL), whose share price soared more than 41% for the month. Though even after that tremendous rally, Royal Caribbean's much-battered share price is still down almost 49% in 2020.
But you should still own tech shares
With that said, technology shares are still leading the charge in the blistering share market rebounds, both in the US and here in Australia.
The tech-heavy NASDAQ-100 Index (NASDAQ: NDX), for example, gained 11% in August. And it's up almost 73% from the March 23 low.
One of the better gauges for tech share price performance in Australia is the S&P ASX All Technology Index (ASX: XTX). The index tracks 50 of Australia's leading and emerging technology companies.
If you're not familiar with it, it only launched recently, on February 24.
No surprise then that the basket of 50 shares tanked over the following month. But in testament to the strength of the nascent Aussie tech sector, the All Technology index is up a whopping 107% from its March 23 low. And it gained 13% in August, compared to the 2.2% gain posted by the S&P/ASX 200 Index (ASX: XJO).
But these strong gains don't mean shares in general, and ASX tech shares in particular, can't run much higher.
Gareth James, an equity research strategist at Morningstar, points to low interest rates, which are likely to remain low for quite some time, as driving the momentum behind the tech share rally.
James says (as quoted by the Australian Financial Review):
Tech stocks have strong economic moats and won't be impacted by the downturn and some could even have an uptick in earnings outlook, but this isn't really about the earnings, it's about the multiples. Momentum is a strong, established phenomenon in stock markets and when a stock gets moving investors keep them moving in the same direction for a while.
What do you do after huge share price gains?
One of the biggest questions keeping investors up at night isn't whether to sell shares that have lost them money. It's whether to sell shares that have reaped huge gains.
Take e-commerce company Kogan.com Ltd (ASX: KGN). Kogan's share price leapt almost 25% in August. Year-to-date the share price is up 178%. Enough to turn a $10,000 investment in $27,800.
If you'd invested at the beginning of the year, do you take some profits? Maybe sell half just in case the share price pulls back from here?
Not according to the Motley Fool's own Andrew Legget, an analyst with Scott Phillip's investment service, Share Advisor. And Scott and Andrew were atop Kogan's potential fully 3 years ago.
Here's an excerpt from Andrew's update to Share Advisor members:
We first recommended this company (Kogan) in September 2017 at a price of $3.60. It was undoubtedly a long-term investment thesis focussed on the trend towards e-commerce. Six months later in March 2018 the price was just under $10 – a phenomenal return. If you got out here you would be up 172%. We continued to recommend members invest at this price. However, I'd be willing to bet that some looked at this price as an opportunity to get out. If they did sell, they soon probably would have felt justified as in November of that year, following a series of partial sell downs by the founder Ruslan Kogan, the share price was sitting as low as $2.65.
But Scott and Andrew didn't recommend selling Kogan shares. In fact, they've never downgraded Kogan since they first recommended it.
And at Kogan's current price of $20.93 per share, members who followed their advice will have nothing to complain about. Unless they're unhappy with a gain of 457%!
The lesson, Andrew writes:
[W]e never got carried away at its previous highs nor did we panic when the price soon collapsed. We simply asked ourselves a simple question; has there been anything that has changed our view on the future prospects of this business? The answer we came to was "no", so we did the only thing that made sense… nothing. Then we let time do its thing.
On a day where many ASX share prices are heading lower, we'll leave you with that. Don't get carried away when share prices go up and don't panic when they go down.
Let time do its thing.
