In an old letter to shareholders of Berkshire Hathaway, Warren Buffett offered his opinion that tech stocks made poor candidates for long-term investments because:
“A business that must deal with fast-moving technology is not going to lend itself to reliable evaluations of its long-term economics. Did we foresee thirty years ago what would transpire in the television-manufacturing or computer industries? Of course not. Nor did most investors and corporate managers who enthusiastically entered those industries. Why, then, should Charlie and I now think we can predict the future of other rapidly evolving businesses?”
It is a correct observation that the price you decide to pay for a stock is determined, in large part, by your estimation of the corporation’s future cash flows.
However, I would modify Buffett’s ideas about the fast-changing nature of the tech industry to note that corporations with high cash balances insulate themselves from the traditional vicissitudes … Read the rest of this article!