Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
A bit of clarification: Buffett is very big on only going after investments that are within your "circle of competence"--the domain of businesses you understand well. He's saying that while there's plenty of money for investors to make in technology, he avoids it because he doesn't understand the sector.
Buffet's success has always been based on having loads of ultra-cheap capital lined up from insurance companies he generally owns big stakes in. He waits for obvious bargains at times when credit is tight and then acquires big positions. He is not really an investment guru. He has good connections.
People who do not understand this about Buffet try to extract more lessons from him than makes sense. The lesson to get from Buffet is "Have very rich business partners and friends." He got where he is by shaping the playing field to his advantage, not by having special investment skills and knowledge.
Buffet doesn't avoid technology because he "doesn't understand it." He avoids technology because ALL he is looking for are temporarily depressed assets that he has an easier time lining up capital for than others. It's rather oversimplifying, but he's kind of a one trick pony. The theoretical MO of most investors is to allocate capital for new business opportunities, and that's just not what he does.
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.