As far as Sequoia goes, these guys are good. They've profitably invested in companies like TJMaxx, Fastenal, and Idexx. These are all really great businesses in every sense. The other company they highlight in the video, Perrigo, has all the hallmarks of a great business as well, although the market seems well aware if the stock is priced at 25x earnings. Sequoia's annual investor conferences are phenomenal lodes of wisdom filled nuggets. The most recent transcript can be found here. You can search for the rest of the transcripts through Google or you can just change the 2 numbers in the URL after transcript to the year (09, 08, 07, etc). They discuss in depth about a lot of the scuttlebutt they've done on managements and industries. While I mentioned OMI as a stock that could be an attractive long term investment, anything these guys mentions is a great stock to put on your watch list and follow. That they have invested in Google is interesting in respect to their historical record.
Part of Sequoia's reasoning for liking Google:
The search engine is extremely powerful. I think it's got about 65% market share. Microsoft has invested several billion dollars in Bing and not really been able to move Google's market share, so it looks like a defensible position to us. And it just creates an enormous amount of value, both, I think for the user, as somebody who does a Google search probably 30 times a day, but also for the advertiser.I've kept this in the back of my head, because Google is interesting company that intersects with all our daily lives. It is definitely at the lower end of its historical valuation and I certainly understand where it holds the traits of a good potential investment. It is definitely a company with a major moat and anyone looking to topple it would have to be capable of pouring in an infinite amount of resources to do so and even then success is not guaranteed(or so the current thinking goes). Everyone seems to enjoy using their products, and the more users it has, the better the company's searches becomes.
This brings me to this TechCrunch article from the weekend that was hating on Google titled "Search Still Sucks":
Is there actual evidence of Google failing at search? Probably somewhere, but certainly not in the search share numbers. They maintain a healthy, almost monopolistic, lead in search despite huge efforts by Microsoft to compete. But then again, AltaVista had huge search share too, right before they suddenly didn’t any more.The author continues how Google searches are increasingly muddled with links that game the system using search engine optimization, which the NYT had an article on this weekend as well. The TechCrunch author is essentially noting some kinks in the armor, that may prove fatal if a competitor can properly exploit the opportunity to provide a better product. Microsoft (not in the above search engine context) is dominant in operating systems despite having a less than lovely product, which is essentially what the author is hinting at with Google. The Reformed Broker posted on Google and its search results too, with some additional links today.I use Google plenty, and I wouldn't use anything else considering this blog and my email are all on the same platform. I wonder though, if laymen that are not part of the technorati feel that the results they are receiving on Google aren't satisfactory. I don't necessarily know if that is the case, because even without blogger or gmail, I don't know if I would jump ship to bing or yahoo.
A la confirmation bias, picking out AltaVista from the search company trash heap as the sole path for Google to follow is misleading as far as investment implications go. It does highlight the inherent risks though in technology. It seems as entrenched as Microsoft is in operating systems, so clearly it won't topple overnight and would be capable of making fixes. This to a degree seems to form one of the key points of Sequoia's thesis. All of the inherent assumptions are complex and dependent on a deeper understanding of the technology than I believe I can comprehend (maybe I'm giving them too much credit though).
Research in Motion is an interesting "battleground" stock (I don't like that name, but I don't know how else to describe it) that demonstrates how leaders are certainly fallible. There's plenty of arguments out there for and against the survival of the company and its merits as an investment. Yet for every Palm to compare RIM to, there is the newly reinvigorated Motorola. I just don't know how you go out picking the winners and those who fade into obscurity. Google seems very far, at this point, from being in a situation that resembles RIM. To continue the dumb metaphor, I think an investor can only be caught in the crossfire.
I'm curious where Sequoia thinks it has an edge in this investment relative to others cover the sector (I'm not just referring the negartive sentiments of the TechCrunch article). While tech commentary is usually very narrative based, Wall Street commentary on the sector might be too quantitative to comprehend shifts except in hindsight. You have to constantly be exploring the latest innovations and comparing them back to the incumbent technology. It seems like a fool's errand, because this innovation can really come from anywhere (judging from my limited and far from in depth observations of tech companies). The hurdle to overcome is just needlessly complex compared to the wider field of investments one can explore. My feeling towards technology companies is that unless you know everything, you know nothing.
While this might not be the best example of why investors should shy away from technology investments, Google will be an interesting example to continuously examine as evidence of such. There is a sentiment that I am agnostic about, that the tech industry is maturing and there will now be entrenched players for many years to come. I don't know if I buy this, so I will not be buying any tech stocks any time soon.
Talk to Andrew about investing in tech companies
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