Tech Investing 101: Buy The Innovators and Sell The Laggards

• Posted by Tech Insidr
• on June 3rd, 2011

My investing strategy all boils down to one simple approach:

“Buy the innovators and disruptive business models, sell the laggards who have stopped innovating.”

Easier said than done though, right?  Not so much.

It all comes down to being able to clearly identify the innovators and laggards.

Great technology companies have a strong track record of constantly innovating, tackling new markets, executing, and delivering consistent results.

Mediocre technology companies are typically “one hit wonders” – they deliver a valuable piece of technology to the marketplace and achieve some level of success, but they struggle to do it on a consistent basis.  Often times, they become a victim of their own success.

I buy shares of tech companies who are “hitting their stride”, consistently innovating, and generally clicking on all cylinders.  I sell shares of tech companies who are not innovating and have major structural issues.

A good example of an innovator is a company like VMware ($VMW). VMware is a major player in the billion dollar virtualization industry, providing valuable software that allows IT admins to run multiple operating systems and virtual machines on a single server.  VMware is the top company (by market share) in this hot market and they are growing at an accelerated pace.

An example of a “laggard” is a company like Nokia ($NOK).  Nokia used to be one of the top mobile companies, but they have consistently lost market share to rivals like Apple, Google, and RIMM.  The company is bleeding cash and there is no quick fix.  Although they have spent tens of billions on research and development, Nokia simply has not innovated, executed, or delivered results in recent years.

Being able to identify the innovators from the laggards is a key skill that separates the great investors from the average investors.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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