Sector Spotlight: The Changing Role of Technology
Over the past several years, technology stocks have become an increasingly important part of major indexes, and as such, the valuations and price movements of these stocks attract a significant amount of attention. More recently, this sector was essentially sub-divided, in order to more accurately reflect the drivers of revenue for each of these companies, but this has only served to illustrate in our minds the spread of technology to our everyday lives.
A cautionary tale in investing in technology stocks can be found of course in the bursting of the dot com bubble in 2000. While some have likened the appreciation of stocks like Facebook to that particular period, the environment has changed dramatically over the last 18 years. The use of the internet by the average American was limited, online shopping was a novelty, and investors were unsure how to assign an appropriate value to companies which were operating with a focus not on profitability, but rather to prove out the thesis that the internet would change the way all of us live.
Fast forward to today, and that thesis has most certainly become the reality. However, it is important to note that a confluence of factors supported this change. From academia to corporate America, the adoption of technology to facilitate better communication, increase productivity, and improve the quality of output has bled into the consumer world. Costs of hardware have come down, and consumer products such as smartphones have offered a platform for integration of the internet into our everyday lives.
We believe that technology will continue to change the way businesses operate. As such, we feel that investing in technology and/or communication services stocks as a means to benefit from this change limits the opportunity set. Instead, we apply a wider lens, and focus on identifying companies in other sectors, such as financials and health care, which are creating new ways of incorporating technology into existing processes, thus creating more sustainable competitive advantages and lowering costs. Therefore, while our explicit exposure to certain sectors may shift over time, our view on the importance of technology as a means to drive businesses will continue to point us towards companies which have an eye towards innovation
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