Seeking Alpha

The pace at which new technologies are disrupting companies makes it dangerous to be a value...

The pace at which new technologies are disrupting companies makes it dangerous to be a value investor, argues VC Ashvin Bachireddy. As mobile devices, cloud software, e-commerce, and much else upends old business models, investing in a BlackBerry or an OfficeMax/Office Depot due to a low P/E can prove painful. "While there may still be opportunities for value investing, you need to be cautious of businesses that appear to be on a slow decline." His remarks seem prescient in light of what happened today to several PC-related names with low multiples.
From other sites
Comments (14)
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
     
    In the last section of the article it's titled: "3. Software Eating the World". In my career I have seen this to be true. Software tends to replace lots of mechanical devices.

     

    That's why I'm bullish on companies like INTC, MSFT, and CSCO, that supply the infrastructure on which these disruptive technologies are built.

     

    Ripping Cisco out of the Internet it the equivalent of blowing up every bridge in the USA, just not going to happen.

     

    I do have to take issue with the title of his article, "The Death of Value Investing." We all know how the "death of..." titles work out in the long run.
    11 Apr 2013, 07:45 PM Reply Like
  • Tack
    , contributor
    Comments (13542) | Send Message
     
    "...Software tends to replace lots of mechanical devices...."

     

    And people.

     

    "That's why I'm bullish on companies like INTC, MSFT, and CSCO, that supply the infrastructure on which these disruptive technologies are built.."

     

    Not so sure about this one. Infrastructure companies tend to become utilities. They may win, but it's a plodding win. And, Microsoft, may have offered a key software platform, but that's changing fast, and Win8 is not right for either the old or new paradigms. I'd guess there are better choices out there.
    11 Apr 2013, 08:52 PM Reply Like
  • bixbubba
    , contributor
    Comments (236) | Send Message
     
    Seems like this makes it even more dangerous to be a growth investor, if growth is only going to continue for a few years. Value stocks are usually stocks that used to be growth stocks.
    11 Apr 2013, 08:02 PM Reply Like
  • Valuable Insights
    , contributor
    Comments (485) | Send Message
     
    We strongly disagree with Mr. Bachireddy. The challenge for any value investor is (and always has been) to separate value from value traps. We would argue that the pace of technology change is presenting more opportunities at a faster pace, and as a result, as value investors we've never seen a more exciting set of opportunities. For every dying PC stock, there is a Himax that one could have bought for under $2 at 3x EPS (ex-cash) in NOVEMBER, that started trading up due to solid fundamentals, but moved even higher due to the emerging segment of wearable computing. We agree, don't assume anything, and be aware of the pace of change, but this is increasing the opportunities for value investors (both long and short) not decreasing them.
    11 Apr 2013, 08:55 PM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (379) | Send Message
     
    A truly valuable insight!
    Thank you, well put!
    12 Apr 2013, 04:06 AM Reply Like
  • justaminute
    , contributor
    Comments (593) | Send Message
     
    A decade ago they were declaring dividend stocks dead too.
    11 Apr 2013, 11:55 PM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
     
    Someone had a link to an article by Cramer in 2000, and he was dogging out old economy stocks like UNP and CL, both of which had fantastic returns after that.
    12 Apr 2013, 12:22 AM Reply Like
  • justaminute
    , contributor
    Comments (593) | Send Message
     
    I'm not a Cramer basher or anything, we all make good and bad calls. He does have the guts to make his calls public. That said, I tend to see his buying advice as more of a contrarian indicator than something I should buy on.
    12 Apr 2013, 12:27 AM Reply Like
  • Derek A. Barrett
    , contributor
    Comments (3534) | Send Message
     
    Yah I am with you, didn't mean to make it sound like a personal dig at Cramer, but just got caught up in the times I think.

     

    I have a video by him in my Instablog and it's the best intro to fundamental analysis I've ever seen.

     

    I am constantly forwarding to anyone asking me about stocks.
    12 Apr 2013, 12:32 AM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (379) | Send Message
     
    A very narrow-minded, over-generalized statement, IMHO.
    12 Apr 2013, 04:16 AM Reply Like
  • David Jackson
    , contributor
    Comments (1234) | Send Message
     
    Value investing and tech stocks have rarely gone together, because technology markets exhibit strong economies of scale and networking effects, leading to "winner takes all" outcomes. For that reason, most value investors (eg. Buffett) have avoided tech stocks.

     

    Office supply retailing is a different type of market. Retailers of technology thrived in the Wintel world because there were multiple hardware vendors all running MSFT Windows. (The OS was a winner takes all market for MSFT.) But then Apple disrupted the retailers by winning the next gen OS market from MSFT, going vertically integrated, and opening its own retail stores.

     

    Bottom line: value investing and tech stocks never went together. And outside tech, value investing (like dividend investing) is alive and well.
    12 Apr 2013, 07:41 AM Reply Like
  • Water Brothers Financial Co...
    , contributor
    Comments (379) | Send Message
     
    I strongly agree that value investing and tech were always strange bedfellows. That is why I have always been a Peter Lynch/KISS fan, retail moves much slower and is so much easier to understand. I am not a Buffet fan - as most of the money he has made in life is either from owning an Insurance co. and from quasi - insider trading through getting on boards and adding to positions (i.e. Disney best example) with enhanced awareness and getting sweetheart deals from GS and Bof A -BUT he did make the great comment on why he never buys tech (he now does every so often) "Bill Gates could do what I do, I can't do what he does". And another revelation of how good all these analysts and TV wiseguys/girls are - check out all the buy recommendations for Wintel in the week preceding the horrible PC slide numbers revealed yesterday. I suppose IBM could be viewed as a value play in tech that works - but for the life of me I don't get how they make money or what they do really anymore. I think the biggest fundamental problem in our economy and the market is the huge over focus on service companies - Salesforce, I have used their products, their future I believe is nil; Social Media Companies - fifteen minutes from being eclipsed by some other vapor company;
    Netflix , no barrier to entry by anyone else - Disney could do their own Netflix, any cable co. can etc. Amazon - sell stuff at no profit and make it up on volume. All these are infinite PE companies with business models that don't work.
    Value investing is way more protective of your downside but now requires a tide raising all yachts to get upside , and as co's get better and better at mging their numbers who knows where your value might go on taking down your year of massaged earnings in one quarter of confession. In a bull market momentum is King , anything with a sexy story can run. In a bear market you have to hunker down. Look at JPM's numbers this a.m. This idiot Dick Bove, CNBC's banking guru said yesterday "Dimon needs to create great earnings for the 1/4 to hold his job and any banker can in a given quarter create earnings" - imagine how bad JPM really did this quarter if you believe Bove's comment - and I do. Yet it would show up on value screens. So what is a great tech stock in this world of fifty co's doing everything? IBM certainly has been the best performer and I don't know if they really do anything (sic) but let's see what happens to their huge service contracts in a contracting world economy.
    12 Apr 2013, 08:12 AM Reply Like
  • justaminute
    , contributor
    Comments (593) | Send Message
     
    The "value," of something like Netflix and many other companies, is in their customer base.
    12 Apr 2013, 09:32 PM Reply Like
  • David Jackson
    , contributor
    Comments (1234) | Send Message
     
    mysterywriter,

     

    That was an outstanding comment. Not sure I agree with *everything* you wrote, but you're spot on about Buffett. Look at his investment in GS, for example: no other investor could get those terms.

     

    On IBM, it's always been hard to understand the company fully, and the complexity gives it ways to manage earnings, which makes me uncomfortable as an investor.
    14 Apr 2013, 07:22 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector