I always regret that I did not buy Google Shares at its IPO, when it was about $85. It’s now $571, almost 7 times of the IPO price 8 years ago. I was using Google for searching all the time and believed that it dominated the searching business and was doing the right thing on almost all the aspects. The only reason I did not buy is because Warren Buffett doesn’t buy technology companies whose value are difficult to estimate. He also doesn’t invest at companies whose track record is not long enough and whose business not easy for him to understand. While I do understand Google‘s business at the time with my IT background, Google didn’t have much track record and the growth of it business was indeed hard to project. Therefore it’s difficult to estimate its value.
Indeed, it perfectly all right to miss the opportunity to buy Google at its IPO based on Buffett’s way. However, no investor should rule out technology companies from his investment portfolio in this era, because these are the companies which generate high returns and high growth year after year, such as IBM, Google, Apple, Oracle, Microsoft (though slower growth now for some of them) and so on. Certain type of IT business is not too difficult to understand, as the companies I mentioned here. The real challenge is the projection for future growth, which affects the valuation of the stock. Due to the quick change of technology landscape, it’s indeed not only difficult to predicate the growth of a company in this area, but also the success or failure of such company. A good example is Research in Motion which had a serial of very successful products, BlackBerry phones, until Apple’s iPhone came to the market. On the other hand, will Apple continue its success for long? It’s very hard to predict.Continue reading “Reflection on Buffett Way – Technology”