Technology and the Value Investor
Technology is the forbidden fruit for value investors. Value investors prefer boring, non-changing industries that are relatively easy to forecast. However, do you know any industry that hasn’t been altered by technology?
No industry is secluded from technology. Technology is everywhere, from supermarkets to utilities. In the past, value investors have invested in newspapers, TV networks, utilities… At the time, they felt like these slow-changing industries could be foreseen to exist for decades. However, today in hindsight, we know this is not the case.
Take for example, the most boring of them all: Newspapers. The newspaper industry is very easy to understand. You have journalists who write articles and then sell them. The largest expenses are salaries and the revenues come from ads in the newspaper. Newspapers have existed for hundred of years under one form or another. However in the 21st century the Internet came, and it changed everything.
Newspapers started to go bankrupt. TV networks faced increasing competition from YouTube and Netflix. Bookstores have been decimated by Amazon and ebay…
Yes, even boring industries have had their share of excitement in the 21st century.
So what now? With technology changing everything, are value investors a dying breed?
Hopefully not. Albeit, value investors will have to recognize the possibility of change and account for it in their investment decisions.
Have you ever seen Iron Man? With its ingenious billionaire superhero Tony Stark that saves the world. He exists in the real world! His name is Elon Musk.
One of Elon Musk’s companies is Tesla. Tesla revolutionized the world with its amazing electric car.
The electric car industry is still in its infancy and would be a good investment for a long-term value investor. I am not talking about investing in Tesla. It would be impossible to know which company will dominate the industry in 15 years. However the industry will need power stations, electric plugs, or any other gadget that an electric car needs…
Like the electric car industry, the natural gas industry is also still in its infancy. Like I discussed in previous posts, China, the Middle East and Europe are all trying to develop their natural gas industries. Technology will surely play a big role. After all they will need pumps, pipelines, chemicals and software… What better time to find undervalued companies that will flourish with their industries.
Even Warren Buffett, who barely uses a computer, is starting to invest in technology. His investments in IBM and solar panels are, in my view, an evolvement to his investment philosophy. His thesis for IBM is that it has been able to retain customers throughout the years like no other company. As for solar energy, it is the long-term contracts that attract him.
These are just ideas, the hard part is finding the right company with an economic moat and a cheap price.
So start before its too late!