Why buying tech stocks is betting on politics (and a bad idea)

Mark Zuckerberg of Facebook © Getty Images
Big tech firms are prime targets for government meddling

I wrote here that it would be a bad idea to have too much faith in the (popular) idea that technology stocks are the best thing to hold for long-term growth. Not many of the emails I have received in response have agreed with me.

But McInroy & Wood, the managers of the one of the funds you probably wish you had been holding for the last decade, do (their Balanced Fund has returned an average of 8.4% net of charges a year since its launch in 1990).

Their most recent letter to their clients shows them worrying about the monopoly positions held by the big five.

“Dominant market positions provide the communications giants with a defensive moat. Sheer size enables them to harvest more personal data, their main asset. A bigger data bank raises, in turn, their ability to garner more market share. The growth cycle could continue until their position becomes impregnable.” Except for that no corporate position is ever impregnable. “This situation can only invite political interference. Monopolies in America are rarely left unchallenged.”

They also point out that with users and governments now beginning to really understand the value of personal data – and to see how damaging hacking can be, there is a further case to be made for interference.

If private and public services are disrupted by events such as the WannaCry virus, it won’t be long before system providers are held accountable for any accidents (imagine how much the WannaCry cost the NHS and hence the taxpayer).

All this will “inevitably mean higher costs as will any requirement for companies to monitor more carefully the content of their own information platform”.

The question that McInroy & Wood end up asking is the same as the one I asked at the weekend: against this background, are you sure that the current valuations of the sector make sense?

  • Kavwya Soni

    It is a super useful information from your writing. And my site is good too. Free stock Tips login Ripples Advisory

Merryn

Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.