Why investing in new tech businesses can be a gamble
When you look at the success of tech titans like Google, Amazon, Apple and Facebook, it’s easy to think there’s only lots of money to be made investing in new technology companies – particularly those associated with the ‘creative destruction’ of incumbent businesses. But the truth about who wins from new technology can be eye opening.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Luke Joseph
:
For many its a gamble worth taking.
An obsession with profitability keeps investors out of Netflix, Amazon, Microsoft (the defining businesses of our time) when they are at their earliest stages, albeit unprofitable.
I don’t see why for the purpose of forecasting the future cash flows and profits of a business, the business needs to be profitable at the time of the calculation. By the time the business is profitable, the stock may have already risen 10-fold or 50-fold.
Sure, some of these hot tech stocks will be dusters, but the 2 or 3 that become 50-baggers would more than make up for them.
Roger Montgomery
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You are right Luke to the extent you have to take a ‘portfolio’ approach. Michael Milken talked about the same appraoch applied to CCC-rated junk bonds. Then he went to prison of course but that wasn’t related to portfolio management.