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Should you ever invest outside of technology companies?

How can the “old” ever beat the “new” again? That is, can value ever defeat growth again?

Trust me, that’s a logical question. However, you need to know that in the past, growth and value stocks have traded in cycles. Growth stocks have their time in the sun and then value stocks displace them. It happened over and over again.

Let’s take a look at how Warren Buffett weathered the tech boom that began in the late 1990s. Has it ditched its proven sectors in favor of the latest hot stocks? No. The Oracle remained true to its personal investment strategy, even though the press speculated that after 30 years of unsurpassed success it may have “lost its magic touch”.

Buffett lost 28% from June 1998 to the end of the decade while the S&P 500 (mostly powered by the top 5 tech names of the time) was up 32%. That is a spread of 60 percentage points! But from that point until 2009, the S&P 500 lost a cumulative 9%. His investments had increased almost 77% during the same time. That is an outperformance of over 85 percentage points for Buffett.

Interestingly, different investment styles (growth, value, momentum, US, international) have tended to switch places on the rankings throughout history. A style can win for a while, but then is usually outperformed by a lagging style. Market strategists call this Return to mean. That is in the nature of markets and has been for decades. Just because the growth was successful doesn’t mean it will win forever.

It is also important to remember that “old can meet new”. That means technology is not found exclusively in technology stocks – technology can give power to any sector that chooses it. For example, banks, industrial companies, oil, transportation, food and beverages everyone uses technology to strengthen their business.

Let’s talk through three examples of “old” sectors that have made remarkable use of technology to keep up with American growth.

  • Agriculture. The innovative food production company Plenty, for example, uses a vertical farming technique. It allows them to grow large amounts of produce on just 2 acres and produce as much product as a traditional 720 acre farm. Today this agribusiness uses 99% less land and 95% less water compared to traditional farming. Plenty’s 2 hectare power plant park is able to supply almost all types of lettuce to over 400 Albertsons stores, a grocer on the west coast, all year round.
  • Oil and gas. Here at home, oil production was around 4.9 million barrels a day at the beginning of 2009. Based on data from late 2020, that number has more than doubled to 11.1 million barrels per day. Not bad for this old sector. The US has gone from being undersupplied to having the ability to supply the world with oil. This remarkable turnaround is due to a reinvention in the way we tap our natural resources. With the use of new technology, oil companies are now drilling horizontally instead of the traditional vertical process. This new drilling technology enables larger quantities of oil and gas to be produced more quickly and with fewer resources.
  • Fast food. Domino’s Pizza is a technology and food case study. Today the company sees itself as an e-commerce company that sells pizza – not a fast food chain. That’s because digital orders make up about 75% of the chain’s orders – and they didn’t introduce online ordering until 2007. That is a tremendous growth and transition through technology. Domino’s has since added the ability for customers to order via SMS, Twitter and Smartwatch. They were the first to implement an order tracking system so customers can watch their pizza get to their doorstep. You may have already advertised your latest innovation, the Domino’s unmanned autonomous delivery vehicle that is at a doorstep near you.

Bottom line

Remember, the role of technology is to make it everyone more profitable – not just the individual technology companies. And we still need food, banks, energy and everything else. None of these “old” staples will go away. It’s hard to imagine turning a blind eye to these traditional stock sectors, especially as technology will continue to teach these old dogs new tricks.

Wes Moss is the host of the podcast “Retire early with Wes Moss“Can be found in the podcast app directly on your smartphone. For more than 10 years he has hosted “Money Matters” in News 95.5 and AM 750 WSB in Atlanta and gives a live show on Sundays from 9 am to 11 am. He is the chief investment strategist for Capital Investment Advisors based in Atlanta. For more information, see wesmoss.com.

DISCLOSURE

This is provided for informational purposes and should not be construed as investment advice or recommendation. This information is presented without regard to the investment objectives, risk appetite or financial circumstances of any particular investor and may not be suitable for all investors. The mention of a company is provided for your informational purposes only as an example and should not be construed as investment advice or recommendation, or as an endorsement of any particular company. Past performance is not an indication of future results. Investing involves risks, including the potential for loss of capital. There is no guarantee that investment returns, returns or performance will be achieved. The information provided is purely an opinion and is for informational purposes only and it is not known whether the strategies will be successful. There are many aspects and criteria that must be checked and taken into account before investing. This information is not intended and should not be used as the primary basis for any investment decision you may make. Always consult your own legal, tax or investment advisor before making any investment / tax / real estate / financial planning decision. Investment decisions should not be made solely on the basis of the information contained herein.