Investing in tech companies could be harder than you thought
Chen Jiahe
Editor's note: Chen Jiahe is the chief strategist at Cinda Securities. The article reflects the author's opinion, and not necessarily the views of CGTN.
Today China's Science and Technology Innovation Board is starting to accept IPO applications. This is the first time that China has its own stock market specifically designed for technology companies. A serious question that investors should consider at this moment is: what are the right things to do for investors when they are investing with tech companies in China?
Silicon Valley has taught investors that investing in tech companies is something very different from investing in traditional industries. When you are investing in a traditional company, for example, an airport or a leading consumption company, you are expecting a few hundred percent returns over a long period of time as long as a decade. Meanwhile, you are also expecting a very low failing rate, perhaps even 0%.
However, an investment with tech companies is something entirely different. A good target, such as Google or Tencent, can offer investors hundreds, or even thousands of times of return. Bad investments, on the other hand, are enormously costly.
Tencent headquarter in Beijing. /VCG Photo 

Tencent headquarter in Beijing. /VCG Photo 

Therefore, in order to make a sound investment rather than a reckless gamble, investors have to manage a well-diversified portfolio, which should contain at least tens of deliberately selected stocks.
Meanwhile, investors should expect a much higher return with the right companies that they find. If investors sold a successful stock when it had only made a few times return, they might miss a very large fortune.
When we are analyzing the history of tech stocks, they usually offer either very astonishing return or very costly loss. Those who still measure the investment return with tech companies with gauges that are used with traditional companies will be lost in this new market.
Tech stock investors should also pay a lot of attention to the competition their companies face, especially competition from the global market.
With a transportation cost close to zero, tech companies usually face severe competition from competitors all over the world. The only exceptions are those companies who produce operating systems and computer chips. While global competition poses pressure on most market participants, it also rewards winners very generously.
VCG Photo

VCG Photo

Understanding technology companies also require a much larger knowledge base. Unlike traditional companies, whose business models are comparably simpler to understand, tech companies are usually working on very professional products that are sold in niche markets. It therefore requires expert knowledge to assess the real value of such companies.
By setting the entry limit for individual investors to an asset scale over half a million RMB, China's authority is doing what it can to bring suitable investors to this market.
Compare with the fundamentals of scientific and technological companies, the valuation of their stocks is not that important. After all, the PE ratio of Tencent has rarely been lower than 40, which is a very high number if we measure it from the perspective of stock investment.
However, this does not mean valuation is not important at all. An expensive price still reduces the potential return that can be made. It is just not that important with technology companies. 
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