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Why should I invest in QQQ? It was in 1984 when Warren Buffett first spoke about index funds, in a letter to the Berkshire Hathaway shareholder letter of 1993. In the letter, Buffett said that he believed that index funds were the best way for most investors, “the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when “dumb” money acknowledges its limitations, it ceases to be dumb.”
1.0 What is QQQ?
QQQ is an Exchange-traded fund (ETF) created by Invesco that makes the same movements as the NASDAQ 100 Index. Explained in simple words, if the Nasdaq 100 Index goes down, this ETF goes down, if it goes up this ETF goes up.
The NASDAQ 100 Index, considers the 100 biggest non-financial companies listed in NASDAQ. This ETF was created in October of 1999, and since its inception, it has increased an xx% yearly, including years 2000, and 2008 bear markets.
It is considered one of the safest ETFs in the market as it has received good ratings from analysts. Nowadays is very liquid having more than 46 M in an average day.
What makes NASDAQ 100 index special is that it uses the modified capitalization method, which aims to reduce the influence of big companies in the index.
Let’s take Microsoft or Tesla for example they are big companies, if one day there is a big sell-off in one of these companies it won’t affect heavily to the index, assuming the other 99 stocks are not falling.
2.0 What stocks does this ETF invests in?
The NASDAQ 100 index, compared to the Dow Jones and AMEX, holds the majority of the companies related to the latest innovations, which is why the most predominant sector is information and technology (Ex. Microsoft (MSFT), Meta (META), and Alphabet (GOOG).
In the second place, we will find Electronics and Hardware, Western Digital, Samsung Electronics or Adobe (ADBE).
Between these two groups, you can find 50% of the stocks in the index.
- Total number of holdings: 102
- Top 10 holdings: Microsoft Corporation (13.22%), Apple Inc. (12.29%), NVIDIA Corporation (6.83%), Amazon.com, Inc. (6.75%), Meta Platforms Inc. Class A (4.22%), Alphabet Inc. Class A (4.03%), Alphabet Inc. Class C (3.98%), Tesla, Inc. (3.52%), Broadcom Inc. (2.29%), PepsiCo, Inc. (1.75%)
- Top 10 sectors: Technology Services (34.18%), Electronic Technology (31.76%), Retail Trade (10.61%), Health Technology (5.52%), Consumer Services (4.25%)
3.0 How has been the behaviour of this index in the previous years?
The QQQ was first listed on the Nasdaq stock exchange in 1999, so it has a relatively long history. The performance of the QQQ has been generally positive over the years, with some fluctuations along the way.
The QQQ has benefited from the strong performance of the technology sector, which has been a key driver of economic growth and innovation in recent decades.
However, the QQQ and the technology sector as a whole can be subject to market volatility, and the value of the QQQ may fluctuate significantly over time. It’s important to keep this in mind if you are considering investing in the QQQ or any other financial product.
If you look at how the stock market has behaved in the last 30 years, we are going to find that it has had various bear markets:
- 2000 – 2002 dotcom crash
- 2007 – 2009 Sub Prime Crisis
- 2020 Covid Crisis
4.0 Why should i Invest in QQQ? Diversification of the risk
Diversification is one of the main reasons retail investors like QQQ, because it provides instant diversification, giving you access to multiple companies with just one investment.
Although you have to remind that like any investment, the QQQ comes with its own risks.
This ETF has a diversified portfolio of companies from multiple sectors, including technology, healthcare, consumer discretionary, and communications. This diversification can help reduce the risk associated with investing in a single company or sector, providing a more balanced investment approach.
You have to take into account that even though QQQ is diversified, it is heavily invested in large tech companies, and therefore is subject to losses when these companies perform poorly. This is what happened during the year 2022, when QQQ ETF, lost 32.58%. This was its worst performance since 2008 when it lost 41.73%. This happened because many of the companies in the index were hit hard by rising interest rates and inflation. Some of the biggest losers in the Nasdaq-100 index in 2022 included Meta Platforms (-37.27%), Amazon (-34.65%), and Netflix (-70.02%)
5.0 Long-Term Growth Potential:
Technology is expected to continue driving economic growth and innovation in the coming years, especially with the appearance of a new technology that is revolutionizing the world, we speak about Artificial intelligence.
QQQ’s holdings are positioned to benefit from ongoing advancements in areas such as artificial intelligence, cloud computing, e-commerce, and renewable energy, which could drive long-term growth.
A glimpse of this possible benefit was demonstrated by Nvidia in the last couple of weeks when the company dedicated to the development and manufacturing of graphics processing units surged 25% in a day, mostly their efforts are strongly focused in improving their products and services through artificial intelligence.
If the current trend with QQQ continues, it is possible that it could reach the same level as its maximum price of $382.26 in the next few months. However, it is important to note that the stock market is volatile and there are many factors that could affect QQQ’s price, such as interest rates, inflation, and economic growth. As such, it is impossible to say for certain when QQQ will reach its maximum price.
Here are some of the factors that could influence QQQ’s price in the near future:
- Interest rates. If interest rates continue to rise, it could put pressure on tech stocks, which are typically valued on future earnings growth. This could lead to a decline in QQQ’s price.
- Inflation. If inflation continues to rise, it could also put pressure on tech stocks. This is because tech companies typically have high-profit margins, which could make them more vulnerable to inflation.
- Economic growth. If economic growth slows down, it could also lead to a decline in QQQ’s price. This is because tech companies are often seen as being more sensitive to economic conditions than other sectors.
Overall, it is difficult to say for certain when QQQ will reach its maximum price. However, if the current trend continues, it could reach this level in the next few months.
