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Does this pandemic really prove technology companies are better businesses?


widenthemoat
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There seems to be this idea in the investment community that this pandemic has highlighted how incredible/invincible technology companies are and, therefore, they should command a premium valuation going forward. Generally speaking, I do think technology companies tend to be "better businesses", but I don't think they are necessarily far superior now than they were before the pandemic.

 

COVID-19 was a random event that benefited technology companies and disadvantaged companies that require high levels of human interaction. Do people think it would be fair to say that the probability of a massive hack occurring that somehow shut down the internet for two months is less likely, from a probabilistic perspective, than what has occurred over the past two months? It's clear that companies with high levels of human interaction would benefit immensely from this, while technology company revenues would fall of a cliff - basically the opposite of what has occurred over the past two months. I really don't know the answer to that question, but thought it might be a good discussion for the board.

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When I read the topic - without reading what you wrote in it - I immediately thought the same thing as you did: computer virus! hack!

 

However, I wonder if that would hit physical businesses hugely too. I.e. if your airline reservation system is down, you're not going to fly. If Visa/MC networks are down, you're not gonna buy anything. If Google is down, well does that mean all your Android phones and apps are down?

 

I guess it would depend what exactly would happen on the tech side. If it's just one company affected, then that company's stock may or may not crash.

 

You may remember that some time ago there was a number of companies affected by ransomware that were halfway offline for a month or so. I don't remember all the companies affected, but I don't think any suffered permanent losses. It could be argued that the incident was not very big though.

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A big hacker attack would most likely hit conventional and less IT savvy business more than the GOOG , FB‘s , or cloud service or SAAS providers.

 

If anything it would speed up the move to the cloud and would benefit larger companies relative to smaller ones.

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The internet is pretty robust, the protocols are all fairly simple and straightforward, and it routes around damage fairly well. There won't be a "hack" that "takes down the internet".    You might take down some companies or even cut international cables, but the internet as a whole would probably remain.  I think you'd have to take out the electrical grid in a large area to completely cut off the internet to that area.  But even then, some people will have satellite connections and generators.

 

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The internet is pretty robust, the protocols are all fairly simple and straightforward, and it routes around damage fairly well. There won't be a "hack" that "takes down the internet".    You might take down some companies or even cut international cables, but the internet as a whole would probably remain.  I think you'd have to take out the electrical grid in a large area to completely cut off the internet to that area.  But even then, some people will have satellite connections and generators.

 

 

The systemic risk is from space weather.  That could cause a generalized mess to the electrical grid and communications.

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Theyre definitely more durable. But I think a lot of the issue is that value investors of a certain ilk just continuously get jaded by scripture. Falsely lulling themselves into being content being wrong, because under a certain mindset, value investing doctrine lets one think that when wrong, you arent really wrong but rather just need to be patient and buy more. A dangerous thing. Especially with bad businesses, which for the past decade, seems to have become a trend for even the best managers out there.

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The internet is pretty robust, the protocols are all fairly simple and straightforward, and it routes around damage fairly well. There won't be a "hack" that "takes down the internet".    You might take down some companies or even cut international cables, but the internet as a whole would probably remain.  I think you'd have to take out the electrical grid in a large area to completely cut off the internet to that area.  But even then, some people will have satellite connections and generators.

 

Wow....you do realize that the design of the internet was the product of government research right? :)

 

In fact when I read the history of how it happened I think it would have been pretty difficult for the internet to have been done without government since it required a 20 year incubation period where all the kinks were worked out. Actually these days I can't even imagine it being done within government...time horizons have shrink too much.

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I think it depends.  There are some truly great tech based networking businesses but there are also many wannabe companies with much weaker models out there hoping to be great.  IMO if the business does not have customer lock-in and high switching costs it is in a poor position. I went through Value Line the other day & was observing the large contrast in profitability between the networked giants & everyone else.  Amazon has created the myth that a barely profitable business can turn into one of these networked giants but IMO Amazon is the exception not the rule.  As with any great model there are limited places that it works well.  Also there is the trend of the cloud based companies reaching the end of their take share from weaker players strategy as they dominate the market & for growth they need to take share from each other as described in Investing in the Cloud: From Gold Rush to Hunger Games.

 

Packer

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The internet is pretty robust, the protocols are all fairly simple and straightforward, and it routes around damage fairly well. There won't be a "hack" that "takes down the internet".    You might take down some companies or even cut international cables, but the internet as a whole would probably remain.  I think you'd have to take out the electrical grid in a large area to completely cut off the internet to that area.  But even then, some people will have satellite connections and generators.

 

Wow....you do realize that the design of the internet was the product of government research right? :)

 

In fact when I read the history of how it happened I think it would have been pretty difficult for the internet to have been done without government since it required a 20 year incubation period where all the kinks were worked out. Actually these days I can't even imagine it being done within government...time horizons have shrink too much.

 

I don't really see how that's relevant.  If the transistor or the integrated circuit had come out of a government lab you'd be telling me that only government research could do such basic R&D.  But it didn't, so you're not.  I think some technologies are almost inevitable.  Once you have computers, linking them together is kind of the next thing you want to do.

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