Second chances are rare in the financial world. Once the whole market knows about a price run, it’s often too late to participate. However, there are a few exceptions to the rule. Right now, there’s a massive bull market taking shape that’s similar to the raging dot-com boom of the turn of the century.
While there are significant differences between the two booms, the differences make the new bull market less risky and longer lasting than the original.
If you missed the internet boom of 1997 to 2001, you are not alone. Believe it or not, many investors failed to participate in the exploding stock market during those heady times.
The good news is it’s not too late to participate in the next booming tech market!
Lessons Of The Dot-Com Bubble
I can’t say I blame the majority of those who missed the monster profits of the first internet boom. The Nasdaq soared from 1,000 to 5,100-plus, and stocks like Qualcomm (Nasdaq: QCOM) rocketed nearly 3,000% in value. At the end of the frenzy, the Nasdaq hit an outrageous price-to-earnings ratio of 200.
Rightfully fearful of the extreme valuations and warnings from luminaries like Warren Buffett, the majority of profits were captured by a select few. Most others either lost money or avoided stocks in the internet sector altogether.
Investors who didn’t take profits in time were crushed when the Nasdaq crashed nearly 80% from 2000 to mid-2002. Companies that made no fundamental or market sense disappeared from the exchanges, and many investors lost their nest eggs.
At the same time, some new stock market millionaires were minted. These were the investors who judiciously put their money to work and became wealthy when others lost it all.
I have discovered that controlling greed, diversifying, and using stop-loss orders are the keys to capturing profits while avoiding the inevitable crash of every boom-type scenario.
Sure, some people will get lucky by plowing all their capital into a single stock during boom times. However, most who take this tack will suffer the consequences. History has proven that this is hardly a reliable strategy.
The Bull Market Rising In The East
Right now, emerging markets, namely Asian economies, are in the midst of a massive internet boom. However, there are enormous differences between the U.S. internet bull market and the Asian one.
For one, most of the Asian internet companies participating in the thriving sector are earning substantial profits, rather than simply relying on oversized valuations. Even better, fundamental economic drivers like an aggressively expanding middle class, climbing disposable incomes, and the move from rural into urban areas act as long-term bullish fuel for the internet sector.
Remember, the majority of emerging-market consumers have never shopped at a big box retail store or owned an automobile. This opens up significant long-term growth potential for internet-based commerce. While the traditional retail infrastructure is lacking, internet use is exploding in the emerging markets. This sea-change enables consumers to access goods and services otherwise inaccessible and creates a tremendous opportunity for savvy investors.
Thanks to these fundamental economic drivers, Asian internet firms like Tencent Holdings (OTC: TCEHY) and Alibaba (NYSE: BABA) have seen their stock prices soar 100% over the last year. JD.com (Nasdaq: JD) and Baidu (Nasdaq: BIDU) are trading higher by around 50% over the same period. I fully expect this bull market to continue over the long term.
Don’t worry — you don’t have to design a diversified portfolio of Asian and other emerging-market internet stocks on your own. In fact, there’s an exchange-traded fund (ETF) that’s perfectly designed for this purpose.
The Emerging Markets Internet & Ecommerce ETF (NYSE: EMQQ) is trading higher by nearly 64% so far this year by following the EMQQ index.
The index is built on over 40 companies doing business in emerging markets — and even carries exposure to a few frontier markets. We’re talking about, for example, the internet and e-commerce sector in China, India, Brazil, Russia, and a full variety of emerging and frontier markets. It is a modified market-cap index, with the most extensive position capped at 10% to mitigate single-company risk.
The ETF’s largest holding is Tencent, with a 9.88% allocation, followed by Alibaba with a 9.62% stake and Naspers at 7.21%. The top 10 holdings make up around 50% of the total allocations with the rest diversified across a wide variety of emerging market internet names.
Risks To Consider: Tremendous political risks exist in emerging markets. Diversification across a variety of companies does not mitigate the risk of hostile political regimes that may come to power. Always use extra diligence when investing in emerging and frontier markets.
Action To Take: It is clear that the fundamental economic drivers are just starting to fire on all cylinders and this boom should continue for many years.
Buy now in the $39.50 per share zone as the stock finds support at the 50-day simple moving average. I suggest using a stop-loss at $34.23 per share, and my target price is $55-plus per share.
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