Laggards have become front runners.
In February, when the whole world was falling apart and as the stock markets took a nosedive, we recommend four stocks to hold: Amazon, Facebook, Salesforce and DocuSign. All those stocks have done phenomenally well. It is not only these stocks that have done well. Stocks like Microsoft, Apple, Nvidia, Netflix to name a few and many other major tech stocks have also held their ground or gone higher. It was always not like this in previous crashes.
When the dot-com bubble was raging on Wall Street in 1999 the technology sector went up by almost 70%. In 2000 when the crash happened, the technology sector SPDR Fund (XLK) that tracks the 70 largest tech stocks in the S&P 500 was down 41% for the year.
And again in 2008 when the GFC happened in 2008, XLK plunged by the same 41% - 42%. But this time around something fundamental has changed. Instead of falling, after a brief bout of selling most big-name stocks have roared back.
Help us grow 🌱
If you enjoy Breezy Briefings, there are three things you can do to help us grow and reach more people. Which would be lovely!
Share it with someone else. Forward the email. Post on social.
Click/tap the little ❤️ icon at the top or bottom. It actually helps.
So, what is the fundamental change? Technology became mainstream. In the intervening years, many things changed. Now if you are leading an urban life you cannot do without technology. The pandemic further aided technology too. Some areas of technology which were struggling, took off to the stratosphere. Zoom is up 270% for the year. Most technology companies feed off one another but Amazon is an exception. The stock is up almost 50% for the year.
From a digital bookshop there is not much areas of daily life that we can go by without the presence of Amazon. They brought efficiency, innovation, productivity, and competition to the system. Their focus is not on profits. Profits will take care of itself. It is about market share, revenue, and competition. They still don’t pay any dividend, but don’t you miss not being invested in Amazon?
Look at Walmart. As cash rich as they are, if it was not for Amazon’s competition through technology they wouldn’t have quickly adapted and embraced to technology as they have done now and made tie ups in countries like India and China. Companies like Target and Walmart which are our “essentials” have stood their ground only because they have become more efficient through technology and gained edge on their competition. Look what happened to Toys R us and Block Busters. They never saw the coming change in product delivery, innovation, competition, and customer preferences. So, they became history.
Technology is ever changing. There is a lot to come through self-driving cars, 5G, IOT, AI, blockchain, CRISPR to name some which will soon become mainstream. New companies will emerge. There may not be much juice in investing in the established big technological names if you are looking for outsized returns. So, look for those gems that you will find if one is focused on their research.
As Ray Dalio of Bridgewater (the biggest hedge fund) has said in many of his interviews, “the companies that will survive in the future will be the efficient meat and potatoes companies for our daily life and others will be the innovators”. I will add one more point: companies who have low debt or are cash rich.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.
Share this post