One of the most common questions I get asked is, ‘What technology or companies should I invest in? You study technology everyday and spend time large companies, so you must have an opinion’. And you guessed it – I sure do. While I’m not an investment advisor, there are some interesting things which we can be sure of when it comes to investing and technology.
The hot technology of the day will always be overpriced. We can expect that hot tech stocks, and even raw materials that go into technology will attract attention and demand that push their prices up. While this may be justified based on future expectations, it often reduces the potential return on investment. We often see this in P/E ratios. For example, the P/E ratio of the S&P500 is currently 24.37 compared to a long term average of 15, due to the big tech stocks currently making up such a big portion of it. In fact, six stocks (Google, Amazon, Facebook, Microsoft, Netflix and Apple) make up 30% of the S&P500. Sure, some stocks continue to rise like these have – but how many of them did you pick to be as big as they are now back in 2005? When it comes to stocks, I take the Warren Buffett approach and invest in Indexed Funds – that way I get all the winners and none of the cost. You can listen to a podcast I did on this topic that explains it succinctly.
Focus on the beneficiaries of the technology. The way to do this is to scrutinise social and economic structures will change due to new technology. Structures which live a layer or two outside of the technology itself, yet stand to benefit significantly from it. One particular area which is both underpriced and about to benefit from a large technology shift is certain forms of real estate. Transport historically has had an big impact on how and where we live. As we enter an era of autonomous transport, it will be easier to live further afield from major cities, and commute either virtually or in your ‘rolling lounge room’ one or two days a week to the office. While Henry Ford facilitated the birth of suburbs through affordable cars, autonomous vehicles and the work from home revolution will invent exurbs – places of great beauty within two hours of a major city. Via technology, these places will have all the benefits of a major city, but the advantage of a tranquil and desirable natural landscape. It’s possible to buy large land tracts in Geelong (1 hour from Melbourne) for a little over the median house price in the suburbs.
Right now this opportunity is wide open a few years out from when new forms of transport will change everything. It’s this type of technology investing few people ever think about.
Steve.