Authored by: Barry K. Mills, CFA & Robert C. Zeuthen, CFA
Unlike other major economic movements in history, global digitalization has played out quietly, gradually developing around us. Now, technology impacts everything we do—eat, sleep, communicate, work and exercise. From an investment perspective, the impacts are just as critical and far-reaching. In this growing digital environment, companies are creating and utilizing high-tech solutions to make their businesses more efficient across all sectors and industries. As such, the term "technology company" is largely becoming obsolete as all businesses, in some way, are participating in this digital revolution. With every company becoming a technology company, we urge every investor to know how to think like a tech investor, and here are seven key ways to start:
- Embrace new things. Don't fight them and don't be afraid. Get comfortable with your discomfort.
- Think about how big a new trend, business model or product category can be, and what market adjacencies there are.
- Focus on a company's top line and the key leading indicators for that top line, like units and users. Applaud companies that reinvest in research & development and hire more engineers. If the business can scale, margins and cash flow will follow.
- Unit economics often matter more than free cash flow in the intermediate term.
- Think about valuations peripherally, not primarily.
- Outspoken competitor criticism often means that the company is onto something.
- What looks like an immaterial product cycle could drive meaningful positive sentiment.
At The Boston Company, we constantly employ expert, innovative thinking to uncover investment opportunities for our clients. With rapid technological adoption, integration and deployment becoming the standard of business, we are applying these techniques to better navigate the ever-changing investment road ahead.