Is ROE analysis suitable for tech investment?

Tech is the key driving force behind the global market.

The technology industry has the characteristics of iterative competition and supply/price can change dramatically due to technology improvement, just like LED/DRAM, so the ROE of the past is not indicative of the future. So our research is all about looking at FUTURE Tech cadence/price outlook. If there is no significant change in the Tech cadence/price in the future (e.g. price cut in auto to impact the auto chips), we should not sell them easily; but if there is, we shall always be determined to cut loss - the longer you wait, the longer you suffer. Value Investment in Tech is only applicable to a handful of subsector who have only 3-4 players without new entrant.

Why many PMs can't do tech well is because they cannot get used to the fast change of competition dynamics. In the past, some value-centric funds were characterized and famous for only looking at ROE, so they only invested in consumer staples and not technology stocks, so they underperformed significantly in 2020-2023, and then it became more and more difficult for them to raise money.

In short, when doing tech investment, understanding the competition dynamics of a company, as well as its product competitiveness, is extremely important. You need expert opinion here.

That's it for this week. Feel free to contact for any feedback or discussion!