Technology stocks, Why it is challenging to invest in them?

 

Japan's Warren Buffet, Chairman Atsuto Sawakami:

Technology stocks investment has become a commonplace. There is an interesting fact in an era about this investment.

It is said that many famous investors have taken a conservative stance on tech stocks for a long time. Why?

To borrow the story of Chairman Atsuto Sawakami, who is called Japan's Warren Buffett...

[caption id="attachment_5937" align="alignleft" width="300"] Atsuto Sawakami[/caption]

This is because it is difficult to implement value investing and long-term investment, which are the standard of stock investing.

*Chairman Atsuto Sawakami is a former investor from a famous fund manager and now runs an independent investment trust that bears his name.

The so-called 'Sawakami Fund' only receives funds from individual investors under the goal of increasing the assets of office workers, and aims for long-term and value investments.

Receiving funds only from individual investors: 

[caption id="attachment_5938" align="alignright" width="276"] Individual investor[/caption]

Let's be more specific and list four major reasons.

The first is that it is almost impossible for the average investor to grasp cutting-edge technology.

Many startups boast of their innovation and present a vision that they can change the world, but it is very difficult to accurately evaluate how mature the technology is and how economically it can create an economic effect.

I don't have any special modeling skills, nor do I have any expertise.

Just look at company forecasts and lab reports to get a rough idea of ​​the flow.

Founder, the most important factor:

[caption id="attachment_5940" align="aligncenter" width="331"] Role of founder[/caption]

It is also the difference between a general company and a venture company. The founder can be said to be the most important factor in an innovative business as a person who makes all decisions and bears all risks.

If the founder shows proper judgment and clever action in a situation where he is on a bad luck, the company will quickly enter an upward trend.

On the other hand, if you show bad judgment and poor capabilities in a situation where there is no good news, you will quickly enter a downtrend.

If it causes problems with personal affairs, it can be shattered in an instant. This means that, in other words, investing in technology stocks can be closer to a human evaluation than a company evaluation.

Technology stocks having too fierce market competition:

Third, barriers to entry are low and market competition is too fierce!

This is because start-up businesses are expected to grow rapidly and rely on manpower rather than capital.

Hundreds of startups appear in an instant when something pops up or makes money.

Even established IT companies as well as large corporations participate in the market competition.

From an investor's point of view, you can see a company that has been pushing hard in this process to collapse absurdly due to competition.

Fourth, technology and performance are completely separate issues!

Even though it is a product of great perfection, it can be forgotten by the public, and conversely, it can be established as a standard even though it is a crude product.

Therefore, in order for an IT company to perform well, it is important to be on the trend, to receive an absolute choice in the market and to have a sharp profit model.

 Go Beyond the outstanding innovation of technology:

Beyond the outstanding innovation and perfection of technology. Otherwise, go straight to the museum.

Based on the story so far, there is too much uncertainty in tech stocks.

In a situation where an emotional approach to stock prices is rampant, there is no choice but to go up and down.

So, who makes money from tech stocks? I am a founder, not an investor. They are like a company and they cannot run away or hide.

They just spend each day in a great struggle for survival.

And what if time passes and most of the players are culled?

It is the few who dominate the wealth. Investors, on the other hand, cannot wait vaguely because they are long-term and value investments.

So, is it right not to invest in technology stocks at all? Of course not.

Global IT giants monopolize the highest market capitalization among listed companies, and their influence is growing at a frightening pace.

In such a situation, the very idea of ​​excluding them from the subject is irrational and unrealistic.

“This company is amazing” and “This technology is fun”:

In fact, in the case of Warren Buffett, as is widely known, he has not invested in technology stocks for a long time, but has recently been working on it.

Even if Chairman Sawakami Atsuto does not focus on his portfolio,

He says he is putting some money in. It is said that he proceeds under some principles.

The first is to rely to some extent on your senses rather than a thorough financial analysis.

There is often a huge discrepancy between the performance of an IT company and its stock price. Valuation methodologies widely used in the market, such as PER and PBR, may become meaningless.

Even PSR is an indicator that focuses on growth, but this is also useless at the decisive moment.
*PER is market capitalization divided by net income,
PBR is market capitalization divided by net assets,
PSR is market capitalization divided by sales.

It was designed with the purpose of objectively grasping the current position by comparing the company's profit and loss and financial position with the industry average.

Therefore, rather than arguing about this or that, it is better to approach it like a game like “This company is amazing” and “This technology is fun”.

Analyzing the qualities of technology:

The second is to focus on analyzing the qualities and management capabilities of the founder.

As mentioned earlier, if the success or failure of a business depends on the luck and ability of the founder anyway, we recommend that you identify careers, performance records, networks, personal tendencies, reputation, and in-house leadership.

In the time of financial analysis and technical evaluation.

[caption id="attachment_5950" align="aligncenter" width="312"] Benefits of technology[/caption]

In the actual startup investment market, the founder is the most important factor in determining, and it is not uncommon to see cases where funds are piling up just based on the value of the name.

The third is not to be too aggressive.

In other words, unless you are a company with strong market power or an overly undervalued company, you should not pour large amounts of money into it and show action at the level of responding to market trends.

In addition, it is necessary to reduce the target rate of return or expectations.

Investing in technology stocks is never easy:

The timing of selling is more important than timing of buying

This is because you never know when the stock price will rise and when it will fall because it is driven by popularity and mood.

Therefore, you have to sell at a point where you think 'this level will be appropriate'.

Chairman Atsuto Sawakami's method is to judge the timing when the stock price is up and down, and then place a sell order when it turns into a sharp decline.

For example, the stock price rises repeatedly between 5 and 15% and sometimes goes negative.

In general, the energy is good, so even if it falls for a short time in the middle, it is like that, but when it suddenly falls below the critical point, I place a sell order at the market price.

Obviously, investing in technology stocks is very different from investing in other stocks.

It seems to be different from investment in startups that remain unlisted. So, I shared the thoughts of one stock price.

Basically, I am not an IT expert, and it is based on the experience of the dot-com bubble, and there is a limitation that it may not fit with the current era called the 'new normal'.