Investing In Technology Differently… And Why Companies Have A Ways To Go To Fully Benefit From It
During the Dot-Com Boom of the late 1990’s, Warren Buffet famously (or infamously) would say he didn’t invest in technology companies because he didn’t understand them. He was consistently chastised (by the press) for not participating in the rally that was primarily driven by all companies associated with the Internet (i.e., those building the infrastructure and those utilizing the Internet). It is unnecessary to revisit in detail, but Mr. Buffett was ultimately vindicated for not investing in Pets.com (and other straw man companies) as grossly overestimated projections for the majority of these companies were undone and subsequently market valuations massively corrected.
I bring this up nearly 20 years later, as I wonder if this is still the case… is it possible for the greatest investor of our time to avoid making investments in technology companies? The answer is no. The reason being is that technology is improving our lives at such a rapid pace that it is hard to draw a clear distinction between a tech company and a non-tech company. It is integrated in everything we do / use. For instance, at this point, Apple to most people is a consumer product company, but at its core is technology. So, whether he likes it or not, Warren Buffet is investing in tech companies… he has no choice.
Taking this idea a step further, what about companies totally unrelated to the tech universe? Well, they too are benefiting from the entrenchment of technology into all things. This big picture idea seems to be never ending. With the availability, only limits on our imagination seem to limit what technology can improve. Opening your mind to this idea, will only increase the clarity of how a business can successfully utilize technology over time.
For example, let’s take a fast food / quick service restaurant. On a recent visit to the drive thru of a Carl’s Jr., I was somewhat amused and taken aback by how life-like the voice on the intercom seemed. While I could clearly tell it was a computer (or some other tech) that was taking my order, the interaction actually was better than talking to a live person. This was due to the clarity of the voice and the ability to take my order completely and correctly.
While I am more than happy to talk with a real person (voice), if the voice recognition tech is available to take drive thru orders, shouldn’t it be used? In turn, the person who was replaced can now be completing a task that is even more value added. In this scenario, everyone wins! The employee most likely gets to do a more rewarding job and probably gets paid more. The owner (investor) most likely increases his/her profit margin. And the customer, gets a fast and correct order, which probably encourages me to come back to this restaurant in the future. A win, win, win environment.
From an investor’s perspective, there is an upfront cost to implement this new tech driven improvement, but over time it will increase the profit of the business and thus ultimately drive your investment return higher. This is just one small tech advancement for a rather basic business. Think of the future changes in this industry as well as other more complex industries. As investors, we don’t have to know how a computer is built to be able to benefit from technology. We just need to identify it as a superior tool that will drive value in whatever company we invest. Next time you are in a Dairy Queen, take a look around at the technology and ask someone if Mr. Buffet knows about it. I’m sure he does!