Philip Delves-Broughton

How to tell a tech bubble from a tech revolution

Technology investing has come a long way since the dotcom bust

[GEORGES GOBET/AFP/Getty Images]

There are two major schools of technology investing. The first believes that all investments these days are fundamentally technology investments. Every big company relies to a greater or lesser degree on the innovations and efficiencies of technology to replace the high costs and laggardly habits of human beings. The faster they do this, the higher their returns.

The second school covets the pop and fizz of the new. It rejects the tedium of earnings-based valuations in favour of the helium of potential. It piles into the latest new share offerings and regards Twitter as the future of mobile advertising, not a punchline.

One school feels like traditional, copper-bottomed investing, the other like a long night in Las Vegas. Each attracts investors with very different risk profiles. As you consider where to park the last of your cash for this tax year, it’s worth trying to parse the ever broadening category termed ‘-technology’.

If tech investing only screams to you of 25-year-olds in hoodies with no concept of a business model, then you will miss out on significant shifts in mainstream companies. But if all you care about is the latest company off the venture capital conveyor belt, you could be missing out on lower-risk, higher-reward tech investments elsewhere.

Look at the arms race between Britain’s supermarket chains. The key weapons these days are customer loyalty schemes, online shopping tools and logistics. The shrinking wallet of the British consumer and fights to endorse this or that celebrity chef are mere background noise to an underlying technology war. One of the most successful investment strategies last year was to buy Ocado, which more than quadrupled as investors grasped the value of its underlying technology, and to sell Tesco and Wm Morrison, which fell. Would you call this a technology or a retail investment? Either way, it was a terrifically profitable one.

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