When I’m researching a company, my questions are just as relevant for a leather goods manufacturer or an Indian mortgage provider as they are for a technology company. So, to me, it’s interesting that so many market participants treat it as a different asset class.
I think there are three broad causes of the biases. The first is the perennial fear of things that threaten the status quo. The second is the behavioural challenge to accept that there can be future value in companies where pay-offs may be a long way away. And the third is a combination of the innovator’s dilemma (still relevant 22 years after it was published) and what I term the internet paradox. What I mean by that is technology has enabled so many different businesses that there is now a confusing situation in which everything and nothing is ‘tech’.
It’s not new to have concerns over the impact of a disruptor. Looking back in history, we come across the 19th century English textile workers – the so-called Luddites – who banded together to protest against new machinery. Even that was hardly a new reaction to change. There had been the scholar, Johaness Trithemius, who wrote his 1492 essay In Praise of Scribes how handwriting was morally superior to mechanical printing.
Such fear of change is an entirely human reaction. From Alexander Graham Bell’s telephone to the flying machines of the Wright Brothers, a mixture of scepticism and antagonism has most often greeted new ideas which challenge the status quo.
Indeed, the Walkman, which I lauded in an earlier blog post, met formidable internal opposition before CEO Akio Morita ignored the comments of his colleagues and launched the product, which subsequently enjoyed a spell of great success.
Then there was the almost overwhelmingly negative reaction to the iPhone. And bringing things up to date, there is similar negativity about autonomous driving, food delivery and genetic sequencing.
In terms of seeing a pay-off a long way into the future, I recall events of two decades ago and the era of TMT – technology, media and telecoms. This particular market hysteria seems to cast a shadow far greater than the others I’ve observed in my investment career. Again, much of it is behavioural. After the crash, a good deal of the value investment community had a ‘told you so’ nonchalance towards those naive growth acolytes who bought such stocks.
However, whilst there was something decidedly end-of-millennium about the 1999 mania, I am convinced that, as with any market bubble, there were kernels of truth to the excitement. Admittedly, eyeballs weren’t enough to ensure success in the nascent internet era. But the successful companies of that era have built billion-person-plus networks that have flourished in the subsequent two decades.
Equally, the telecoms part of TMT foresaw the faster communication speeds unlocking myriad new services. While it has delivered in terms of facilitating other services and businesses that rely on technology to drive them, it has been much harder for the telcos to garner the value from this increased utility that many people envisaged in 2000.
Again, this is evidence that technology is not different. It facilitates and creates winners and losers – some expected, others less so – just like any part of the equity market.
This is the second blog of a three-part series. You can read part one here.