I think every investor starts by copying some famous investor, but eventually develops their own investment style that suits them best. That’s how I started too – my first “mentor” was Warren Buffett. Then I discovered Peter Lynch and read all his books. For me, he was a real game-changer. I truly saw myself in his approach to the stock market.
This is how I developed a style most similar to Lynch’s, perhaps with a bit of Charlie Munger (as much as I know him). So growth stocks that can grow more than 10% annually.
Let’s look at why:
The Scalability Advantage
Most of my holdings are in tech stocks, and scalability is an important reason why I prefer them over traditional industrial companies. Tech companies can grow faster than industrial ones because they can increase their sales more easily without proportional increases in costs or workforce.
Real Examples
Microsoft can sell 1,000 more software licenses without needing extra production facilities or new employees. If there’s demand, Microsoft could theoretically grow license sales by 50% each year. The cost of a digital license is minimal, yet it brings full selling price.
Tesla, on the other hand, has to physically build 1,000 more cars if they want to sell 1,000 more cars. They can’t just produce 50% more products overnight. For each additional car, they need additional raw materials, batteries, components, workforce, and production time.
Booking.com doesn’t need 50% more people to handle 50% more reservations. Their platform scales automatically – the same algorithms and system can handle millions of additional transactions.
The Manufacturing Reality
Manufacturing companies usually have to grow their workforce almost linearly with revenue growth. More products typically mean more workers, more facilities, more raw materials. The automotive industry has an average EBITDA margin of 8-15%, while tech companies have 25-40% or even more!
Lynch’s Philosophy in Practice
Peter Lynch said: “Buy what you know, but study it thoroughly.” In technology, I see clear long-term trends – digitalization, artificial intelligence, cloud services. These aren’t short-term fads, but structural changes in the economy.
Charlie Munger adds the perspective of economic moats. Tech companies can build the deepest moats:
- Network effects – more users mean greater value (Facebook, LinkedIn)
- Switching costs – it’s hard to replace an operating system or ERP system
- Data advantages – Google knows more about your search habits than you do
What This Means for Investors
This scalability difference means tech companies can often achieve higher margins and faster growth rates than traditional businesses. Data from the last 10 years confirms this:
- Average annual revenue growth in tech sector: 15%
- Average annual growth in traditional industry: 3-5%
*These estimates are approximate, but we can see which way things are trending.
Of Course, Nothing is Without Risk
Tech stocks are extremely volatile. Multiple times in history, many have fallen 50-70%. Regulatory risks are significant – just look at what’s happening with Meta in Europe. Tech companies can become obsolete overnight if someone develops a revolutionary solution.
However, long-term, I believe the advantages of scalability outweigh the risks of volatility.
My Practical Implementation
I diversify across different tech subsectors, for example:
- Software (Microsoft, Adobe) – stable subscription revenues
- E-commerce (Amazon, Booking) – growing with the digital economy
- Semiconductors (NVIDIA, TSMC) – foundation of the entire tech revolution
- Payment systems (Visa, Mastercard) – enabling the digital economy
The above are just examples; I don’t necessarily always hold all these stocks in my portfolio. The list above is not a purchase recommendation but simply a classification of companies into sectors for easier understanding.
Conclusion
This is one of the key reasons why I heavily emphasize tech stocks in my portfolio. Scalability isn’t just a theoretical concept – it’s a real competitive advantage that translates into better financial results and higher returns for investors.
Note: This reflects my personal investment approach and reasoning. Always consult with a financial advisor and don’t invest money you can’t afford to lose.
