what was I thinking

Now that I spend most of my time analyzing stocks (job) it scares me to think that I actually invested my own money at one point. I really didn't even do a cursory amount of analysis of any of the stocks I bought since I began investing.

That's one of the reasons my job is so interesting. Today I'm reading a sell-side tome on hard drives. Some poor bastard spends his whole time thinking about how companies involved with hard drives make money. Me? I just read about it on the weekend.

Take a hard drive. Pull it apart. You've got a few basic components. The read head that writes and reads bits, the media that stores the bits, you've got some housing around the actual drive, and an ASIC chip that helps the drive interpret the bits and operate correctly, some screws, some plastic mounting components, and an assortment of other various components. Now. Which piece has the best operating margins and the best return on equity? In other words, if you started a company, which part would you want to make? Naturally you'd gravitate towards the higher tech components. Perhaps the ASIC or the read head. Turns out the plastic mounting components and the screws had, by a wide margin, the best operating margins (~18%) and the best ROE (~20%). The worst? The ASICS and the read head.

It's a weird result but in most cases accelerated technological advancement seems to lead to such quick obsolescence and such high capital costs that it's tough to make money except for a few standout companies such as Intel. Combine that with the fact that no one wants to go into business making low tech parts. It's almost like an artificial barrier to entry. Want to raise money for a new chip? Much easier. Thus too much competition. In fact our fund generally makes most of its money shorting the really high tech stuff and going long the crap no one would possibly want to own or get into. Buy low sell high - Short high cover low.