One of the most quoted professionals in the investing world and one of the world’s most famous value investors, Warren Buffett, has stated many times that he dislikes technology stocks. Buffett claims that he dislikes these stocks as he does not understand them, which to some extent is true. However, perhaps more to the point would be the claim that technology stocks have no place in the world of value investing, as investing in technology is, even for the best in the business, speculation.
Now, obviously one exception here is International Business Machines Corp. (IBM). Buffett counts the global technology behemoth as one of his four core holdings, although it is debatable if International Business Machines Corp. (IBM) can be lumped in with the deluge of other technology stocks on the market. IBM is entrenched in the global technology market with more than a century of history and innovation behind it as well as a devoted management team; the main qualities Buffett looks for in any investment.
Aside from International Business Machines Corp. (IBM), there are many aspects of tech investing that can be likened to speculation. During the past five years, according to data supplied by the FT, the average return of 340 equity funds with a focus on technology was an extremely unattractive 17.7%. And there are no better returns to be found elsewhere. Indeed, around 40% of venture capital backed tech companies fail, 40% only produce a moderate return and three out of four technology startups fail. So, it would appear that even the experts cannot pick the right tech companies for the long-haul.
Technology innovation keeps speeding upFor the most part, these failures are down to the rapid pace of technological innovation. New technologies are now being adopted much faster than they were, say, 100 years ago when devices like the automobile and telephone took well over 50 years to reach 50% adoption.
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