Tech Stocks | Our Approach
How & Why it Works
Our comprehension of technology is broader than the conventional view held by most market participants. Instead, our definition of technology is drawn from historical evidence that facilitates an accurate understanding of its long-term impact and the underlying rationale behind the risk premium from a fundamental historical perspective. This approach is not based solely on market price statistics generated by herd trading. Instead, it provides a holistic view of the context of technology, as it has evolved over time and its implications for the future. By leveraging our unique perspective, we are able to offer a more comprehensive and nuanced analysis of technology and its dynamics, which can help inform decision-making in a range of business and academic settings.
From a historical perspective, technology can be defined as the systematic development of techniques for manufacturing and executing tasks over time. The lever, as a simple machine, is an example of early technology that had a considerable impact on productivity and economic growth. It enabled humans to apply a small force over a long distance to achieve a significant effect, improving efficiency in various tasks, including farming and construction. The evolution of technology is marked by significant milestones, such as the invention of the wheel, the development of agriculture, the advent of the Industrial Revolution, and the rise of the digital age. These technological advancements have brought about significant changes in productivity, economic growth, and societal structures.
In the context of investment, the creation of intrinsic value is contingent upon the generation of free cash flow. This value is primarily driven by the divergence between the return on investment capital and the cost of capital. Notably, the return on investment capital is predominantly influenced by productivity, which is defined as the ratio of output to input. This metric is observed to be profoundly correlated with the fundamental principles of economic theory.
The role of technology in the creation and growth of investment intrinsic value cannot be overstated. From the earliest innovations such as the wheel for agriculture to the most recent advances in serverless architecture and gen AI, technology has been a driving force behind the development of long-term investment strategies. In this context, a comprehensive understanding of technology is vital to building a sustainable investment strategy with a sound foundation. By appreciating the impact and implications of technology, investors can establish a fundamentally robust investment framework that is well-positioned to deliver long-term value.
Balanstone boasts extensive expertise in researching technology industries from a global perspective. This knowledge serves as the bedrock for our long-term growth investment strategy. We adopt a long-term view of the secular growth of investment value to inform our judgment. In light of the world’s low birth rate and decreasing population growth, technology investment has become increasingly vital. It is imperative to note that boosting productivity is a universal goal for humankind on this planet.
A significant number of investors with a short-term herding bias have adopted a view that suggests investing in technology presents an opportunity to determine the optimal timing for buying or selling, such as predicting earnings surprises or event-driven cycles. Given the substantial variability of the market, these investors believe that forecasting and timing provide a means of achieving returns. While acknowledging that achieving returns through such an approach is not unattainable, it is not our objective to profit from trading. Our extensive experience has led us to question whether the event-driven and forecast-oriented approach can indeed be sustainable and scalable in the market over decades or more.
Our investment philosophy is grounded in a rigorous approach to primary research and extensive experience in the technology sector. We believe that this approach allows us to identify opportunities that others may overlook, and make informed investment decisions that deliver meaningful results over the long-term.