I work in the tech industry and have always been fascinated by technology and the role it is playing in improving our lives (definitely mine – cannot think of life without broadband, internet, e-mail, google etc).

Back in 2000, during the tech bubble, like others I got swept by the internet and technology mania and went ahead in invested in technology stocks. The basic logic of my analysis was correct, but I got the valuation wrong (overpaid for the optimism). After promptly losing money and later reading munger and buffett’s thoughts on technology, I have changed my approach to technology.

I am by no means a techno-phobe. I spend time reading tech blogs, looking and trying to understand changes happening in technology and how it seems to be impacting various businesses such as newspapers, media, advertising etc. But it is diffcult to realistically forecast a technology business out for several years. It is more so for technology businesses as valuations of most of these companies is high and to make any money, one has to be able to forecast the cash flows for 5 years or more.

Over time based on what I read and based on my experience, I now prefer companies which are predictable than which will have the highest growth. My own experience has been that markets tend to pay more for growth than predictability ( FMCG v/s IT services stock ?)

At the same time the decision to invest in tech stocks also boils down to one’s investing philosophy. I have tend to have a focussed portfolio with a few names and want to hold for 3-5 years with low maintenance (quarter or annual followup). As a result it is difficult for me to hold technology stocks as it requires too much effort to follow them.

As an aside I work in IT services. So my professional career is tied to the Tech industry. The last thing I want to do is put all my eggs in the same basket. That is not the typical way of looking at diversification. But for me the income stream through my career and my stock portfolio need to diversified sufficiently. Who wants to be lose a job and also see the stock portfolio crash at the same time, because the industry hit a roadblock !!

I keeping reading this debate on whether long term buy and hold is a smart strategy or is it a fad followed by buffett followers.

It would seem to me that such a discussion clearly shows that the person debating it really does not get the core idea of the approach. Long term buy and hold is not long term buy and forget. There is no such business which one can buy and forget. When there is such intense competition, one has to follow or track the company in which one is invested.

My typical approach to understand the industry and then the company in detail. If I am comfortable with the company and the industry and if the valuation is compelling, I tend to slot the company into one of the three buckets

Type 3 companies are value stocks (graham style) where the intrinsic value of the business is flat or at best increasing very slowly. I hold such companies till they come within 90% of my estimate of intrinsic value and then I sell them. I do not see a benefit of holding such companies too long if the company is selling close to the intrinsic value which is turn is flat or worse, shrinking

The other end of the spectrum are my type 1 kind of companies. These are dominant companies with strong competitive advantages and their intrinsic value is increasing at decent pace. Such companies are more of the buy and hold ‘longer’ type of companies for me. I typically read the quaterly updates for these companies and try to check if their competitive strenghts are intact and they would continue to increase their moats as time passes. I have found that selling such companies when they touch their intrinsic value (atleast my conservative estimates) has not been a good idea. Most of these companies do well over time and their intrinsic value keeps increasing. So even if the company is moderately overvalued, then I would tend to hold on. Ofcourse if the company is wildly overvalued, then I would sell the stock.

The type 2 companies are between 1 and 3. This is grey area where majority of my picks lie. Most of these companies have decent comptetive advantages and their intrinsic value increases erratically. So these kind of companies require more attention and at the end of each year, I go over my thesis and try to re-think whether I should hold onto the stock or sell it , especially if it is selling close to the intrinsic value.

All of the above is a decent amount of work. Which is why I don’t hold more than 10-12 stocks in my portfolio. But finally I think there is no buy and forget kind of stock. Ofcourse I don’t follow the stock on daily or weekly basis. My follow up is more quaterly or annual.