Technology Companies: The Widening Spectrum
Posted on 14. Nov, 2011 by TheFreeInvestor in General, Industry Trend, Investing Philosophy
Technology companies have come a long way from the early fast-growers in 70s and 80s to a wide spectrum of companies with varying characteristics and across all the phases of business cycle. A case in point is the recent disclosure by Warren Buffett that Berkshire Hathaway bought a significant position in IBM (IBM) and a small position in Intel (INTC). In case of Intel, it is unclear whether it was Buffett’s decision or that of one of his two newly hired money managers. But, from the chat on CNBC, it seems like he has been following IBM for a long time and finally decided to buy the stock.
Buffet is known for investing in companies that he expects to stay the same for a long time — railroads, , insurance companies, Coca Cola (KO), American Express (AXP) etc. So, his investment in IBM and Intel points to a segment of the technology industry that is now grown to become stable and mature, just like the dominant players in any other industry.
Till the mid 2000s, technology companies were bucketed under a single group and labeled as high-growth, fast-changing, uncertain-future companies that sported pretty high multiples. Internet dot coms were the face of high tech companies. Though that characterization is still valid for some segments of the industry, the breadth of the types of companies has increased significantly. You can find mature, slow growing, stable companies like IBM, Intel, Cisco (CSCO) to cutting edge early start companies disrupting more and more industries across the economy.
I have a large dose of technology companies in my portfolio. But, I believe even with the high level of exposure to technology, my portfolio is highly diversified. The range of technology companies in my portfolio include a diverse set of companies, e.g., disruptors of different segments of entertainment world, gaming, outsourcing, energy efficiency, retails/eCommerce, networking services, business services automation, Chinese travel services and social media.
It has been an interesting journey to watch and profit from the evolution of the technology industry from a small silo to a diversified ecosystem of companies. I can’t wait watch it grow further.
(Disclosure: No position in any of the companies listed above)
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