IBM’s Acquisition of Red Hat & The Modern Tech Stock

From 1911 through 1991, American tech stocks delivered returns of 8.3% annualized, almost two percentage points below what a general basket of large-cap American stocks produced over the same time frame. And much of that was driven by IBM. If IBM were removed from this historical measuring period, the tech stocks would have only produced 5.2%.

Why? Because of the immense wipeout risk. Unlike a candy bar manufactured by Mars, Inc. or Hershey, which can be slightly tweaked and repackage and sold for profit over and over again, the typical life cycle of a technology company has been that (1) a new product is introduced; (2) it saturates a market, creating an avalanche of wealth within a few short years; and (3) the product is replaced by the better mousetrap, leaving sales of the former product to wither due to obsolescence as bankruptcy or some sort of dulitive event occurs.… Read the rest of this article!