How to Invest Like Warren Buffett in the Technological Age

Why a solid understanding of tech can make you a better investor than Warren Buffett and help you navigate potential pitfalls like Cineplex Inc. (TSX:CGX).

| More on:
Financial technology concept.

Image source: Getty Images

Warren Buffett’s favourite holding period for his investments is forever. Despite his desire to hold on to his investments to infinity and beyond, very few of his holdings have been held forever, because it’s just not practical in real life to do so. Competitive landscapes are continually changing, moats are eroding faster, and it’s just hard to know what impact technological disruptors will have in a decade from now.

These days, tech is advancing rapidly — too rapidly. It’s tough to find a business that has a moat wide enough to hold up for decades at a time. The concept of a wide moat may become a relic of the past, as technological disruptors move into low-tech industries that were once thought of as untouchable.

With that in mind, it’s not a mystery as to why Buffett and many other old-time pros are having a tougher time beating the market consistently in the new age. Rapidly evolving tech keeps changing long-term investment theses from across the board, and it certainly appears that no incumbent’s market share will ever be safe for decades at a time.

As you’d imagine, in today’s disruptive world with AI and other difficult-to-fathom disruptive technologies, it’s become as important as it’s ever been to understand technology — something that Buffett has admitted he’s had trouble doing in the past.

In an era of technological disruption, you can’t be allergic to tech as Buffett’s been, because, in the new age, a poor understanding of tech may lead you to own businesses that are on the wrong side of a secular trend.

Corus Entertainment (TSX:CJR.B) and Cineplex (TSX:CGX) recently found themselves on the wrong side of powerful technology-driven secular shifts, and shares of each company have gotten obliterated over a very short period of time.

Nobody wants to be on the receiving end in such scenarios, so it’s critical to think of the massive impact that new tech is capable of and its disruptive potential for firms within old-fashioned industries that were once considered to have moats.

Prior to Corus’s plunge, it was thought of as a stable, boring business that offered essential television programs that have garnered attention for many decades. All of a sudden, the stable cash flow story ran into a brick wall when video streaming took off, and many consumers cut the cord for a better, cheaper, and more convenient source of content.

Shares fell over 85% from peak to trough, and although it came as a surprise to many investors, for those who looked at the seemingly far-fetched disruptors that were picking up traction in the content space, the writing was already on the wall well before shares went into free-fall.

Similarly, with Cineplex, the stock more than halved over a very short period of time due to a plethora of issues that should have been apparent to shareholders who continued to do their homework after pulling the trigger on the stock.

Several years ago, I’d warned investors that Cineplex was going to crash and burn. I wasn’t an oracle, my investment thesis for Cineplex just make zero sense when considering the industry-wide headwinds that wouldn’t have been visible for some investors who did their analysis from the bottom up.

Indeed, Cineplex had exceptional stewards running the show, but it really doesn’t matter if the best captain in the world is on a ship that’s slowly sinking.

As a pro-active investor, you can save yourself a world of pain by doing your homework after pulling the trigger and paying attention to major technological trends happening in the market.

Don’t shun tech because you can’t understand it like Buffett. Learn it and get it within your circle of competence and you’ll be able to better navigate the pitfalls and move towards the opportunities within the rapidly changing market place.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Tech Stocks

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

Woman has an idea
Tech Stocks

Prediction: 1 Stock That Could Trounce the Market 

The TSX has been favouring tech stocks, but not this one. However, it has the potential to trounce the market…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Businessman holding AI cloud
Tech Stocks

AI Will Transform Everything: Investors, Be Early Adopters and Buy These 3 Stocks

Investors looking to invest in companies doing big things in AI should consider these three stocks for their portfolios.

Read more »

stock research, analyze data
Tech Stocks

Forget Shopify: These Unstoppable Stocks Are Better Buys Today 

Should you consider buying Shopify stock while rivals consider a buyout or should you go for stocks with a stronger…

Read more »

A colourful firework display
Tech Stocks

2 Potentially Explosive Stocks to Buy in March

These two growth stocks are destined for many more years of market-crushing returns.

Read more »

edit CRA taxes
Tech Stocks

TFSA Millionaires Are Learning They Can Still Be Taxed

If you day trade stocks like Shopify (TSX:SHOP) in a TFSA, you may be taxed.

Read more »

Shopping and e-commerce
Tech Stocks

Where Will Lightspeed Stock Be in 5 Years?

Lightspeed stock (TSX:LSPD) continues to be touch and go, so what might happen in the next five years?

Read more »