Tech stocks for booms and busts

Do you remember when the internet first came to your attention? It was a strange concept to investors back then. Many had their doubts. After all, why would you need to send information through the phone lines? We had couriers; we had the post.

Doubts aside, the internet, and the development of the World Wide Web (WWW), is perhaps the most influential development in technology in the last 100 years. But in 1990, it was hard to understand being able to share and access information anywhere in the world… instantly.

The WWW broke down borders and prohibitive barriers to trade hindering small business. Small business was no longer restricted to local markets. Suddenly they could use the WWW to put their goods and services in front of millions of potential clients, both domestically and internationally.

Many investors didn’t realise the power of the WWW at first. But when dotcom companies started to make an impact (on stock charts), investors took notice. The personal computer and a connection to the internet were the new must-haves. And it sent investors into an all-out buying frenzy.

Heading deeper into the 90s, you were crazy if you didn’t have exposure to tech stocks. Stocks with nothing more than an idea or a web portal, set all-new records for IPO performance and stock gains.

For example, theglobe.com was a “social” site. It went public 13 November 1998. The offer price was US$9. It opened at US$87. In the first day of trading it hit US$93. Then, by August 2001, the stock was delisted from the Nasdaq for failing to stay above US$1 per share. But in the 90s the industry was a money-printing machine for investors.

From 1990 to early 2000, the Nasdaq climbed 1,001.84% to a then high of 5,048.62 points. Of course, you know what happened after that. The market came to a crashing halt. The dotcom bubble burst and companies like theglobe.com, pets.com and garden.com – all darlings of the late 90s – were worthless or bankrupt.

Stocks like pets.com and theglobe.com would have changed your investing life – if you had managed to get in and get out at the right time. But many investors didn’t. Many stuck by and paid the price.

However, from the ashes came some of the greatest tech stock investments of all time. And if you invested in the right tech companies, then the dotcom bubble bursting was just a minor setback. Take, for instance, amazon.com. Amazon’s stock price increased tenfold from 1997 to December 1999. By September 2001 it had fallen 94%. That means a $5,000 investment in amazon.com in 1997 would have grown to $50,000, and then shrunk back to under $3,000 in just four years. How’s that for a financial rollercoaster ride?

But the important point here is that since the bust, Amazon is up around 9,297%. Even from the peak of the dotcom bubble Amazon is still up around 823%. All the big tech companies we know today survived the dotcom bubble and came out stronger.

In hindsight, it was risky investing in tech stocks in the late 1990s and early 2000s. The dotcom bust was inevitable. But making huge returns often causes investors to turn a blind eye.

Don’t be mistaken, it’s possible there could be another tech stocks bubble burst sometime in the future. We could be on the verge of it today, although we don’t think so.

Still, the aim is to invest in companies of substance, companies that are more than an online portal. Those that provide some kind of revolutionary change to the world we live in.

The way we see it, the influx of software companies that do everything from checking your CV to organising your calendar is reminiscent of the dotcom bubble. But these companies are only one particular, and relatively small, part of the overall tech industry.

That’s why we look beyond those companies and seek out revolutionary stocks that will change the game, like Amazon, Netflix and Microsoft all did. And that’s why we’ve recommended companies like NVIDIA, Fastbrick Robotics, Mobileye, and Energous… to name a few.

Whether there’s a bubble forming or not, the right kinds of tech companies will power through over the longer term. That said, if it looks like things are really getting out of control – à la 1998–99 – then we’ll be the first to suggest exiting a few positions. But for now, we don’t think we’re in that situation.

For now, whether you think the world is going down the doldrums or we’re in for the greatest boom of all time, exposure to technology is a must. There are too many exciting developments, too many revolutionary companies that are worth your time and investment dollars, to sit on the sidelines.

Best,

Sam Volkering


The alt-right: saviour, threat or opportunity?

by Andrew Lockley

Today, we’re setting aside science and technology – and looking at an exponential trend in politics and society.

Many of the transformations that have revolutionised our world are down to innovation, but that’s not always true. In the last 100 years, some of the biggest trends weren’t directly technological: the Great Depression, Mao Zedong’s “Great Leap Forward”, the rise of fascism, and the World Wars. Yes, you can place their roots loosely in technological innovation – but they were profoundly social in nature.

So, what’s the next big move?

Today, we’re seeing an increasing polarisation of politics. After a generation of broadly centrist politicians, the fringes are on the rise. Whereas the nineties and noughties gave the UK Blair and Major, we’ve now moved to a world of Corbyn and Farage. Neither man has held office, but they are influential figureheads of populist movements. Farage, at least, has delivered real change. We’ve not seen divisions like this in the UK since the days of Arthur Scargill and his miners’ strikes.

Internationally, we can see a similar trend – most notably Trump in the US. Underpinning this political change is a social transformation. We’ve looked at the economic reasons for this before in Exponential Investor. Simply put, the working class in the developed world has economically stagnated, while others are reaping the benefits of globalisation. The global elite are getting richer, as are the middle classes of the developing world. However, bus drivers in Manchester aren’t.

The economic crisis of 2007-8 appears to have acted as a trigger event for this social and political transformation. From then on, both politics and society clearly shifted.

Part of this transformation has manifested itself in a grassroots right-wing movement, which is sometimes referred to as the “alt-right” – particularly by its critics. This loose, leaderless alliance of libertarians and nationalists is having a real influence on politics and society. Compared to the old guard of the right, this new generation is more libertarian, edgier, and often wittier. Sober establishment figures, and hate-filled traditionalist newspapers, are rapidly giving way. In their place we now see anonymous social media banter, and controversial vloggers like Steven Crowder and Blaire White.

Today, I’m interviewing an Australian who has become one of the many rising voices on this new right wing. Unlike everyone else we’ve interviewed before in Exponential Investor, we’re unable to identify her. She’s known only by her online identity “SJW Nonsense”. Through this profile, she’s built a significant following, based around lampooning the “Social Justice Warriors” of the left-leaning, metropolitan elite. Together, we’ll be looking at a whole range of controversial issues – and their effect on your investments.

AL: Let’s start with the identity. Why do new right-wingers have to conceal their identity?

SJWN: Many of us would prefer to use our real identity, myself included. I think we are too easily dismissed as “trolls” when our identities are hidden. Unfortunately, the people we are speaking against believe we have no right to share our opinions – a technique called “no platforming”. They have repeatedly had people fired. This is achieved by using social media campaigns to put pressure on companies to take action against their employees for sharing “hateful” opinions. Depending on who you offend, this can even extend to genuine death threats and fatwas. I have even seen them go after the family and friends of those who use their real name in these discussions. While I might risk my own livelihood for my views, I also have to consider the safety and wellbeing of those I love – so I choose to remain anonymous at this time.

AL: You don’t like to call yourself alt-right, but you appear to align with its style and values. Can you explain why you don’t adopt the label?

SJWN: There is a lot that is incorrectly labelled as alt-right as a form of criticism – often as an attempt to discredit criticism of “mainstream” ideas. As a result, I am frequently mischaracterised with the label. Though I share some concerns with those on the alt-right, I disagree with the fundamental views that distinguish them from other right-wing groups. I spend my days making fun of identity politics on Twitter. I consider much of what the alt-right stands for to be another, reactionary form of identity politics, and I reject that approach, regardless of which side of the political spectrum it comes from.

AL: What do you think the alt-right stands for and what characterises it?

SJWN: The meaning of the term has shifted quite dramatically over the past six months or so. Initially, it was a catch-all word – used to describe young right-wingers who are not traditional conservatives. It was a label that encompassed a broad range of beliefs. I was hesitant to use such a label, because of how imprecise it was. I didn’t want to align myself with a movement that included views I had serious disagreement with. In recent months, though, it has become more limited in its application, and it has now been firmly claimed by the more extreme fringes of the movement.

The alt-right tends to share concerns and beliefs with other right-of-centre groups. They tend to be in favour of strong borders. They’re often concerned about illegal immigration; and in particular, the high rates of migration from Islamic nations. This may be due to concerns about terrorism and the difficulty of competently vetting immigrants. There is a focus on protecting the “Western way of life” and its perceived values. Most who choose to align themselves with the alt-right are now protectionists with nationalist tendencies, although many others are still incorrectly labeled with the term. While gay rights usually are not seen as a controversial issue among this group, transgender issues still are. Political correctness is despised, and the right to free speech is hallowed. There is almost universal support for Donald Trump.

It is white nationalism – a controversial and, to many, repugnant view – that has ultimately come to characterise the alt-right and distinguish it from other groups. Anti-Semitism, in particular, has become a hallmark of the alt-right, along with other forms of racism. Many are opposed to “race-mixing” and subscribe to “race realism”. That’s the belief that there are genetic differences between racial groups which render some inferior to others. There is a strong concern with “white identity” and securing the interests and future for white people. This white nationalism is what sets the alt-right apart from other groups on the right. To be clear, most are not interested in actively harming those who are not white. They are, however, concerned that a “white genocide” is taking place through immigration. They believe this is causing white people to become minorities in countries they have traditionally considered their own. Their wish is to combat this change through tighter immigration, and intra-racial relationships, rather than through violent action.

AL: When many people think of right-wing movements, they imagine boot-wearing skinhead racists. But Milo Yiannopoulos typifies this new right wing – yet he’s a gay man of Greek and Jewish heritage. What’s so threatening about a movement that’s superficially so inclusive?

SJWN: To some extents, Milo shows how much more polarised the label “alt-right” has now become. He no longer calls himself alt-right or expresses sympathy for the movement. He has been outright rejected by them – since he is Jewish and has black partners. But he’s still a figurehead for the broader right-wing movement we’re discussing.

Milo challenges both sides of the traditional political divide. His sexuality and ethnicity is repugnant to many stereotypical right-wingers. He also takes great pride in pushing the boundaries policed by the contemporary left: dressing up in culturally appropriative costumes; using a slur as the name of his tour; and writing articles with titles like “Feminism is Cancer”. This equal-opportunity offensive behaviour makes him a threat to many, even as it endears him to others by offending their opponents.

The right-wing is often very misunderstood. It is easy to assume that a rejection of political-correctness is based on a hatred of minorities. For the most part, this is not the motivation at all. Instead, it is rooted in a desire to protect liberal Western values, and a rejection of thought- and language-policing.

AL: You’ve made a name for yourself, mocking things like mansplaining, white privilege, rape culture, and other tropes of the left. Is there any value in these concepts, or do they just distract from the real injustices in society?

SJWN: Some of these things began with a grain of truth, but are now unhelpful in actually making sense of the inequalities of society. It is true, for example, that there are some people who are racist or misogynistic, but it is unhelpful to teach women to look for oppression everywhere. It’s not “patriarchy” if a man tries to explain something, or sits with his legs slightly apart on public transport. Such concepts teach people to see themselves as a victim, and to blame others for every ill in their lives. This denies them agency and distracts from more genuine issues. I would like to see feminists focus more on female genital mutilation and wife-beating under Sharia law. I think we need less on the supposed “rape culture” of men talking to women in bars, or two drunk people having sex. Similarly, I would like to see more open discussions of the real problems within African-American communities – instead of a perpetuation of the assumption that issues affecting black people arise from “white privilege”. There are many real injustices in society that we should be discussing, but these issues are continually side-tracked with invented ones. That causes more harm than good.

AL: One lightning rod for the alt-right has been Black Lives Matter. The movement seems grounded in legitimate concerns about discrimination and police violence, so why is there such opposition on the right?

SJWN: While the alt-right may reject Black Lives Matter because of their views on race, many on the right (including many who are black themselves) share concerns about Black Lives Matter for non-racial reasons. Black Lives Matter sounds like a very reasonable movement on the face of it, but it doesn’t hold up to scrutiny.

Black people make up about a quarter of the victims of police shootings in the United States each year. This is disproportionate to the size of their US demographic (13% of the population). However, blacks are greatly over-represented in violent crime statistics. Based on convictions data, blacks commit 62% of robberies, 57% of murders and 45% of assaults. When sorted by interactions with the police, we would actually expect to see more black people shot by police each year.

In addition to this, Black Lives Matter chooses to ignore many of the facts surrounding individual shootings. Many of those who have been shot are portrayed by Black Lives Matter as peaceful, innocent citizens – despite having long and violent criminal records, and behaving erratically during the lead-up to their deaths.

The behaviour of Black Lives Matters “protestors” also contributes to the wider scepticism towards the movement. Rioting, looting and burning things down are not sympathetic forms of protest. Protestors chanting, “What do we want? Dead cops!” does not incline the average onlooker to support Black Lives Matter.

AL: If we look at history, nationalist and populist movements often slide quickly into authoritarianism, discrimination and violence. Do you think that the alt-right is vulnerable to such a transformation?

SJWN: I am a libertarian myself – so any form of authoritarianism, regardless of its political origins, is a concern. Mercifully, the alt-right is a small, fringe group and I do not expect that to change. At present I consider the social justice left to be a far greater threat to freedom and to society as a whole. They are a larger movement who are more socially accepted, encouraged on almost every college campus and have demonstrated a propensity for violence and authoritarianism that has escalated rapidly. I think the danger of the alt-right is being overstated. This is done by lumping anyone who disagrees with certain “social justice” precepts, or who voted for Donald Trump, into the same category.

AL: One of the recent rallying cries of the right has been opposition to social and political manifestations of Islam in Western countries. I know you have personally been an advocate for religious freedom and tolerance. Do you think that liberal Western democracies can accommodate mass migration from cultures where human rights, as we understand them, aren’t even acknowledged?

SJWN: I believe strongly that people should be able to practice any religion they choose in a free country – provided this does not place others at risk.

However, the mass Islamic immigration currently taking place in Europe has been disastrous. Terrorism, no-go zones, honour killings, genital mutilation and rape have becoming problems on a scale not previously seen by the contemporary Western world. Germany has been a textbook example. In the Q1 2016, migrants in Germany committed or attempted 69,000 crimes. This figure doesn’t even take into account the 1,200 German women allegedly assaulted by up to 2,000 migrant men on New Year’s Eve 2015 in Cologne.

This is unacceptable in a free society. I believe limiting immigration from Islamic nations, and focusing on vetting and assimilation, is of fundamental importance. America, Australia and other Western nations need to learn from what is happening in Europe, and think carefully about our own policies. At the heart of the question, I think, is one of compassion. I think there is such a thing as pathological kindness. We should help those we can, but we need to recognise natural limitations to our capacity to help. We can’t provide a safe and inclusive home for anybody, if we are unable to keep out those who would undermine our values.

AL: Finally, our readers are principally concerned about the economic angle on key long-term trends. Can you identify any way in which you think the rise of the right will impact firms and economies?

SJWN: I don’t think the alt-right will have much of a direct impact on firms – certainly not in the short term – but it will have a geopolitical impact. We’ve seen that already: with Brexit, Trump, and the return of Pauline Hanson to Australian politics. Nationalism and protectionism are favored by the alt-right and are also seen in the policies of Donald Trump. If Trump prioritises protectionist policies, this could have an enormous effect on the business world – notably in the potential dismantling or restriction of the free-trade maxim. This principle has underpinned much of the economic development accompanying globalisation – so it could mark a profound change in the way the global economy operates.


What do you think of the alt-right? Fad, movement or threat? Please do let us know – andrew@southbankresearch.com.

Best,

Andrew Lockley
Exponential Investor

Category: Technology

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