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Feb. 25, 2022, 4:30 p.m. EST

This tech investor worked during the dot-com boom and bust — this is what he’s thinking about the stock market now

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By Michael Brush

Talk about a rough ride for tech investors!

The Nasdaq /zigman2/quotes/210598365/realtime COMP -0.72% has fallen more than 15% from its November peak, and nearly half of the stocks in the index have been cut in half. Tech is basically in a stealth bear market.

For insights on how to think about this debacle and whether — or what — to buy or sell, I recently caught up with Matt Moberg, who helps manage the Franklin DynaTech Fund /zigman2/quotes/208338361/realtime FKDNX -0.98% . We could do worse than check in with this manager, who crushes the competition.

During the past three to five years, the fund has outperformed its large-cap growth category and index by anywhere from 17 to 21.3 percentage points annualized, according to Morningstar Direct. That’s some rare outperformance in a managed fund world where more than half of managers regularly lag behind. The fund is big, with over $24 billion under management. It charges a relatively low 0.79% fee.

Founded in Silicon Valley in 1968, the fund has invested in innovative companies for longer than millennials have been alive. Moberg joined in 2004 and he became the lead manager in 2009. He’s been a tech analyst since the latter days of the late-1990s tech bubble. The “dynatech” in the fund name is short for “dynamic technologies.”

Here are five key lessons on how to perform well in the market, and what to think right now about nagging topics like the tech rout, inflation, and the lasting impact of Covid on the economy and investing.

Lesson #1: Invest in innovation

Innovation trends are often long-wave events that last for a decade or more. So, if you catch the right stocks, it can be a good ride.

“We look for companies that have durable growth that will go far into the future,” says Moberg. “We want to consistently outperform the market by investing in innovation.”

One thing that can really help in this effort is recognizing when an external shock permanently changes part of the economy. These are big events like the oil shock in the 1970s, or the advent of the internet in the 1990s.

“These big external shocks can change adoption rates of innovation and technology permanently,” says Moberg. If so, you have an interesting long-term trend to invest in.

Moberg thinks we just witnessed one of these external shocks in Covid-19. The permanent change? Ecommerce saw a big acceleration due to Covid — and its growth is going to continue. That makes ecommerce names in his portfolio look even more attractive, especially in the current selloffs.

A look through his holdings shows that ecommerce-related names he likes include the obvious one, Amazon.com /zigman2/quotes/210331248/composite AMZN -2.78% , but also Shopify /zigman2/quotes/209033712/composite SHOP -3.12% , Adyen /zigman2/quotes/214279535/delayed ADYEY -0.60% , Sea /zigman2/quotes/202797958/composite SE -6.74% and MercadoLibre /zigman2/quotes/200678442/composite MELI -3.00% .

But what about their current weakness? Is something wrong with these companies? More likely, investors got used to the big acceleration in sales due to Covid, so the cooling phase for their growth now has turn sentiment against them.

“These companies are still growing and adding to their market dominance,” he says. “They are still growing on top of fabulous Covid comparisons. That implies the change those companies have experienced has been permanent, which is what we look for.”

Lesson #2: Consider innovation leaders

Another big reason these stocks are down is the high level of inflation. This has investors worried about excessive interest rate increases by the Federal Reserve. Higher rates are a risk to growth stocks because they can cause a recession. But history shows the economy and the stock market typically continue to be strong for most of the time the Fed is in rate-increase mode.

The risk of higher interest rates also hurts growth stocks because this reduces the worth of future earnings in valuation models. By definition, a lot of the earnings growth in innovation names is far in the distant future.

But like me , for what that’s worth, Moberg thinks inflation will be temporary, and cool by the end of the year. This isn’t exactly consensus. Both Bank of America and Morgan Stanley were recently projecting inflation at 7%-8% or so at the end of 2022.

Moberg thinks wage pressures may ease as people continue to return to the workforce, reversing “the great resignation.” He notes that technology is inherently deflationary. Supply chain issues will get resolved. Even if inflation comes down but remains well above 2% by the end of the year, if investors have clarity on where it’s going, that will calm nerves.

“We are at a period of uncertainty, and the market does not like uncertainty,” he says.

/zigman2/quotes/210598365/realtime
US : Nasdaq
11,524.55
-83.07 -0.72%
Volume: 4.42M
June 27, 2022 5:28p
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/zigman2/quotes/208338361/realtime
US : U.S.: Nasdaq
$ 102.75
-1.02 -0.98%
Volume: 0.00
June 27, 2022
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 113.22
-3.24 -2.78%
Volume: 62.13M
June 27, 2022 4:00p
P/E Ratio
54.61
Dividend Yield
N/A
Market Cap
$1184.91 billion
Rev. per Employee
$292,178
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/zigman2/quotes/209033712/composite
US : U.S.: NYSE
$ 373.21
-12.02 -3.12%
Volume: 5.82M
June 27, 2022 4:00p
P/E Ratio
300.61
Dividend Yield
N/A
Market Cap
$48.59 billion
Rev. per Employee
N/A
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/zigman2/quotes/214279535/delayed
US : U.S.: OTC
$ 14.91
-0.09 -0.60%
Volume: 857,479
June 27, 2022 3:58p
P/E Ratio
82.47
Dividend Yield
N/A
Market Cap
$46.15 billion
Rev. per Employee
$3.25M
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/zigman2/quotes/202797958/composite
US : U.S.: NYSE
$ 75.05
-5.42 -6.74%
Volume: 6.00M
June 27, 2022 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$44.88 billion
Rev. per Employee
$147,991
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/zigman2/quotes/200678442/composite
US : U.S.: Nasdaq
$ 717.31
-22.15 -3.00%
Volume: 657,489
June 27, 2022 4:00p
P/E Ratio
196.27
Dividend Yield
N/A
Market Cap
$37.25 billion
Rev. per Employee
$235,985
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