tanaypratap's letters

How to invest in tech

published2 months ago
3 min read

If you know even a little bit about me, you must have an idea that I started my career in network security. I honestly wish I hadn't. I lost the three most precious, early years of my professional life. Then, I had to press the Restart button and learn to program afresh.

I did not mind learning a new programming language or tech stack. The question that lay before me was: What should I learn?

I believe every programmer, especially a fresher, faces this question. Flutter? React? AI? Mobile development? What should I learn?

Now that I have enough experience in this industry, I can give you a framework to make that choice. This newsletter issue talks about which tech stacks you should learn with the tadka of financial investing.

I so wish I had this framework back then. I urge you to make its best use.

Identify the type of stocks

When I said "with the tadka of investing", I was serious. We will categorize tech stacks into types of stocks.

Penny stocks

In the finance world, penny stocks are high risk and high reward. It can give you up to 1000x returns if it grows. It can also bring you down to zero, or even negative when it dies.

Just like newbie investors and stock traders are attracted to penny stocks to make quick money, students are attracted to the penny stocks of the tech world.

Any new tech stack is a penny stock until the market adopts it, giants like Microsoft, Google, etc. use it, and a developer ecosystem or community develops around it.

Can you think of any examples? The one that comes to my mind is Flutter.

Flutter, as a tech stack, is getting started. It has the backing and marketing support of Google, but no large tech company currently uses Flutter in production.

Safe investments

Safe investments are stable, backup investments that generally return a low but steady 7-9%. You can think of this number as the yearly increment on your salary.

Real estate is an example of a safe investment. It is a physical property which will not vanish overnight. You can rent it out and generate a steady income.

A safe investment in tech is any stack that has existed for 10-20 years. Some examples are databases, network and security, enterprise architecture, and compilers. They won't change overnight because a lot of investment has already gone into them. The updates are mostly incremental, and once you acquire the skill, you don't continuously need to put in a lot of effort.

Software engineering practices like testing, OOP, enterprise architecture, clean code, etc. fall under the same bracket.

The gold in your portfolio
What's the one thing whose price rises even in bear or down markets? Gold.
The gold in your tech portfolio is people skills, communication skills, marketing, sales, and design that turn you from an engineer to an engineering leader.

Large-cap stocks

Large-cap stocks are the Reliance or the TATA of the stock market. They provide a modest 10-15% increase and are considered safe.

The large-cap stocks of the tech industry are stacks that have been in use for at least 5 years. More and more companies adopt it with time. The demand continuously increases and they win new markets.

React is a large-cap stock. It has got the backing of Facebook. Microsoft, Netflix, Airbnb, and other major companies use it in production. Newer versions like React Native, React Native Web, AR, VR, and Ionic React have attracted new businesses.

Since I have enough idea about React, I can claim it to be a large-cap stock. But you can also compare Android or IOS mobile development along the same lines and reach a similar conclusion.

Create your tech portfolio

Now investors don't just have an understanding of the type of stocks. They use that knowledge to distribute their portfolio or total investment. We will do the same for our tech portfolio using the 50:30:20 rule.

Note: If you are old like me and do not have a risk appetite, turn the ratios into 50:40:10.

50% in large-cap stocks

Remember React and Mobile Development? Investing in these tech stacks will make the most money for you.

30% in safe investments

Software engineering practices, and sound knowledge of databases, architecture, etc. provide stability and are equally important.

Remember to spend 4-5% of your safe investments on the GOLD of your portfolio.

20% in penny stocks

I know this seems the most attractive. But we don't want to shoot into the sky and crash badly. Moreover, you need not worry too much that these penny stocks will take over tomorrow and you will go jobless.

Changes in the tech industry happen gradually. If you don't learn and upskill, you might go jobless someday, but it's surely not going to happen tomorrow itself.

Till next time

I hope you got some idea of what to learn and what not to learn when you are starting your tech career.

This issue is based on a YouTube series I did back in June 2022. Check it out to learn more.

While we are on the subject of YouTube, I am not sure if you have noticed but I have started revamping my YouTube channel. Please subscribe if you haven't already. And don't forget to share it with your friends and family.