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Technology Stocks : PC Sector Round Table
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To: Frodo Baxter who wrote (1310)12/17/1998 11:38:00 AM
From: Robert Douglas  Read Replies (2) of 2025
 
Lawrence, you wrote the following:

"And y'all think the savior for the dismal economics of capitalism is the Internet? Which makes businesses more efficient? More frictionless? That lowers the barriers to entry? Not quite. Competition will only become more perfect, margins will come under more pressure, and the only way to make a buck is productivity growth, transient competitive advantages that don't even last a damn product cycle.

Be afraid. Be paranoid. Because in the end, valuations matter. Business is pain."

I couldn't agree more with this statement. It has been something that has been bothering me for quite some time now - this notion that new technologies such as the Internet will make competition quicker to adapt. I have always felt that since margins tended toward the mean over time, that it was a dangerous practice to buy stocks of high margin businesses – something Wall Street believes in with a passion. Now it seems that this process may be accelerating - that high margins may become as stable as some sub-atomic particle in an accelerator.

What are the investment implications if true? How will we make a buck in this brave new world of lighting-quick competition? Should we buy the companies that are behind with the notion they will be quick to catch up? It may sound perverse, but just like betting on sports, Wall Street gives you a greater reward if you pick this year's loser that turns into next year's winner.

I welcome all comments on this issue.

-Robert
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