Retail investors flock to tech, will it last?

Tech giants lost more than $269 billion in value on Thursday amid the market selloff. Albion Financial Group Partner & CIO Jason Ware joins Yahoo Finance’s On The Move panel to weigh in.

Video Transcript

- Welcome back to Yahoo Finance "On The Move." We want to bring back a friend of the program, Jason Ware. He is Albion Financial Group partner and CIO. And not only is his insight valuable, he's got the best do-it-yourself backgrounds of any guest we ever had in stream v-land.

All right, Jason, got to talk tech with you. And one of the things you like to talk about is that large cap tech, in particular, outperforming for years. As we are now in this kind of new world, it seems as if the growth for large cap tech, there's no cap. It can continue to go up. Or is that misguided?

JASON WARE: Hi, guys. Good to be with you, as always. And you know, you hit the nail right on the head. So what we have are not just stocks. These are companies, and we have to remember that.

And these are companies that have wide moats. They have secular growth, they're high-quality, and they continue to gain market share. And I think that's a critical point in understanding why large cap tech has outperformed in the 11-year bull market on the way up. It outperformed in the bear market this year on the way down. It cooperated in the bounce-back since the late March lows and has actually performed better this week in this little correction.

So that continues to be the case because of what you're getting with those companies. Look at Microsoft. Look at Amazon. Their businesses are doing better during this pandemic. So I think stick with those high-quality quality secular growth names, and that's where investors can hide out on a relative basis.

JULIE HYMAN: Hey, Jason, it's Julie here. It's good to see you. I want to ask about the involvement in tech stocks large and small from retail investors. There's been a lot of focus on Dave Portnoy-- a.k.a. Stool Presidente, I guess-- who is now into day trading and is talking to a lot of people about that. So I'm just curious, as an investor, are you watching that as something entertaining, or are you actually taking it into account as something that could be moving the market?

JASON WARE: Well, "Davey Day Trader" is definitely an entertaining series to watch. I'm not even sure how serious Mr. Portnoy is taking that, as opposed to just providing entertainment. But what I think it really speaks to, in your broader point, is that there seems to be a fair amount of retail participation, not only with that type of avenue, but look at what's happening on Robinhood. There's been a lot of discussion about folks coming in on the retail side and bidding up stocks that maybe are very risky and have high beta, and they're just riding this wave of market resurgence to the tune of 46% off of the lows prior to this week's correction.

And I there's something to that. But as long-term investors at Albion who are stewards of our clients' assets over many years and decades, it's not something that we pay too close attention to. I don't think the fundamentals of Apple, of Visa, of Amazon are going to be any different because Robinhood traders get involved over a few weeks or a few months. We're still sticking to our knitting, which is looking out over many years and trying to assess whether these businesses are worth owning for our clients.

RICK NEWMAN: Hey, Jason. Rick Newman here. There is a lot of damage evident throughout the economy, but not so much in the tech sector. Have you detected anything you might call meaningful damage among large cap tech companies?

JASON WARE: Yeah, that's a really good question. And I think it speaks to why, as I mentioned earlier, technology has done so well on a relative basis. Because we're seeing a lot of small businesses that are under pressure and that are shutting down, unfortunately. And that's really painful and sad to watch. But the flip side of that is that some of these large technology companies-- some of these large consumer companies, as well-- are actually gaining market share amid that wreck.

So I think there are some spots in technology that are doing better than others. Obviously, work-from-home has been a very bright spot in technology. I mean, look at everyone here in this panel. We're all working from home. And we need connectivity. We need cybersecurity. We need cloud. We need all of these things that these mega-cap technology companies are providing.

But I think when you start to piece apart some of the other industries within technology, there's been some winners and losers in semiconductors given the disruptions in the supply chain in Asia and all around the world because of COVID-19. So I think you have to be a little bit more selective in some areas like semiconductors. But by and large, cloud, and work-from-home, and cybersecurity, and software have been really strong businesses-- and for understandable reasons-- throughout this challenging economic environment.

JULIE HYMAN: Jason, I'm going to ask the question that I think I frequently ask when we have these discussions about tech, which is price, right? Because you are paying up.

JASON WARE: Right.

JULIE HYMAN: Especially on a relative basis, you're paying up for these tech companies. So I know for most of this stuff, you've held it for a long time. So you've been beating this drum for a while. But if you're looking to get into this stuff today, you are definitely paying a premium. Is that a concern?

JASON WARE: I think that's a fair point. And you have to buy good assets well, as Howard Marks teaches us. And so I think there's something to that. But I also think it depends on your time horizon. If you're trading these stocks, then you have to be a little bit more careful about whether you pay 30 times earnings versus 25 times earnings and the growth you're getting for that.

If you have a three-, five-, or 10-year view as you're getting into these stocks, then I think that matters a little bit less. You certainly don't want to dramatically overpay. But what I think is really interesting and the big takeaway for your viewers and for all of us through this has been, what value should we assign these mega-cap technology companies that have outperformed for years to the upside, despite all of the hand-wringing and naysayers saying they're overvalued, they've run too much, they contribute too much to the market return, and then they outperform to the downside when the economy is falling apart, and then they outperform again in the rally backed up. I mean, that type of profile, that upside-down side profile, deserves a premium.

So the correct question is, what premium. And I think those businesses, with those kind of stock features, deserve to trade at a higher multiple. So we're not too concerned about valuations on any of them.

- And Jason, along those lines of the valuations, it doesn't apply to all of the tech companies, but I'll just throw out Amazon. I mean, there is a real appetite, at least on Capitol Hill, to maybe break up companies like that and have them spin off AWS. Is that something an investor who might be buying at that price needs to be aware of? Or is that so far down the road, it's not a concern?

JASON WARE: Yeah, no, it's a good question, and it's something that we wrestled with a little bit earlier year on this year and late last year given what was happening in the presidential election. I think there were some candidates that had more of an appetite to break up big tech, and I think there was a bigger risk among some of these big technology companies when those folks were in the race.

We have it narrowed down to President Trump and Joe Biden, both of which I don't anticipate have a strong appetite to go in and break up big tech. There might be some additional regulation, but the reality is, as we've seen with Facebook, both in Europe and here, that more regulation just means higher hurdles for small technology companies to compete against them.

So I think short of breaking them up, there's very little regulatory risk there. And with the two folks that are running for president and the makeup of Congress likely on the other side of this, we don't think that's a major risk. In fact, we added to our position in Alphabet recently on the fact that the political outlook seems to be a little better for these technology companies.

- Jason Ware, it's always good to see you. Albion Financial Group partner and CIO. And might I say that the weather in Salt Lake looks really good today. That shot looks nice.

JASON WARE: It's beautiful. 90 degrees.