“To justify their current valuation they’d need to sell every book in the world”
This was written by a prominent fund manager about Amazon in 2000. It was true, the valuation of Amazon was ridiculously high if you analysed them as a book seller.
Obviously not the case in retrospect, books were just the starting point.
The future is here
In meetings with clients I sometimes inflict on them a rambly ramble about technology and the scale of impending business and societal revolutions.
- The world is going digital and software is king
- The advent of genetic engineering with Messenger RNA only the beginning.
- The revolution underway in alternative energy and battery technology.
- AI and machine learning will change so much; autonomous vehicles and the reimagining of transport.
- Algorithmic improvements to supply chain management.
- DEFI and the blockchain.
- Satellite Wi-Fi.
- The internet 3.0, the Metaverse and the potential uses of crypto currency.
These are just some of the big ones!
The world is heading to an awful lot of new places. We are not talking incremental upgrades here. What’s coming will not be like the technological evolutions of the last 20 years:
- TV. Still TV, just better because of the internet.
- Cars. Until the last few years, as above.
- Retail. Mostly still physical stores.
- Medicines. Better but not revolutionary.
- Finance. Cheaper and more tightly regulated but still the same big players.
- Energy. Fossil fuels, just more efficient.
- Internet 1.0 to 2.0. The expansion of third party connectivity. The ability to promote and access content socially or commercially. Fundamentally the same structure as 20 years ago just way better.
Evolution, revolution, destruction
From an investment perspective we’ve found it helpful to divide industries and companies into one of three types.
Evolutionary
These are capable of transforming themselves to embrace the new digital world and be enhanced by it. So examples would be:
- Disney
- Nike
- Lululemon
- Starbucks
- VW
- Walmart
These companies to some extent are ripping up their existing methods to create new ones, which involves cost.
Revolutionary
These are new age companies designed specifically for what’s coming next:
- Tesla
- PayPal
- Square
- Coinbase
- Teladoc
- Shopify
- Tencent
- Snowflake
- Moderna
- CrowdStrike
- Roblox
- Palantir (Software company)
Creative destruction
These are the industries which are most challenging to transition. Companies can certainly survive but appear unlikely to prosper:
- Oil Majors
- Most car manufacturers
- Department Stores
- Airlines
- Banks
- Supermarkets
- Commercial Property in certain sectors (offices, low grade retail as examples)
Tesla
“To justify the valuation they’d have to sell half the cars being bought”
Variations of the above were said by numerous stock analysts about Tesla until very recently.
They were right. If Tesla was valued as a conventional car company like Ford or GM it was ludicrously overvalued.
It is however apart from the leading electric car manufacturer the leader in battery technology, battery manufacturing, in-car technology and absolutely crucially streets ahead in fully autonomous driving technology. Estimated to be only 24-36 months from roll out.
Oh and its founder also has a commercially successful space rocket company.
Reminiscent of anything?
Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog, and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service because of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.