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

The world’s big tech companies are prime targets for government meddling. They’re not as good a long term bet as you might think, says Merryn Somerset Webb.

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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 hencethe 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?

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