Author: Edward Iftody
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Introduction: If I made a reasonable-scale investment in the early 2000s, I would have retired long ago. Today, I firmly believe that in the long run, investing in disruptive companies and focusing on the future is a very good choice.
From the late 1990s to the mid 2000s, I worked in the investment industry in Canada. I love Amazon's story, and I think it's a revolutionary business, but it wasn't until mid-2017 that I bought Amazon's primary stock.
According to my calculations, if I made a reasonable investment in the early 2000s, I would have retired long ago. My mistake stems from not fully realizing that the mainstream media has a poor understanding of disruptive companies and that I have not trusted my intuition and common sense.
Today, I firmly believe that in the long run, investing in disruptive companies and focusing on the future is a very good choice. However, investing in disruptive industries is not for everyone. Undoubtedly, making the necessary commitment to a disruptive investment is often more difficult than investors imagine.
In this article, I will discuss what you need to know before investing in a disruptive business.
- Financial analyst's pricing strategy;
- How the media is hurting disruptive tech companies that are rising;
- Similar to value investing, the timing of choosing a disruptive investment is extremely difficult-you need to make long-term investments;
- Is Bitcoin the next disruptive technology opportunity?
- Some rules I use to evaluate new disruptive business models.
Analysts have been terrible at evaluating disruptive tech stocks
Twenty years ago, I was a professional in the investment industry, and where I worked, CNBC was broadcasting all day. At that time, CNBC hated the unpredictability of Amazon's revenue. Analysts and anchors have always complained about quarterly losses and too little trust in growing revenue streams and growing customers. In hindsight, it may seem strange that the media is so resolutely opposed to Amazon, but I think there is a good reason for this bias.
The investment industry has always regarded Warren Buffett as God-and for good reason. His value investing style has stood the test of time, making many Berkshire Hathaway investors multi-millionaires.
Buffett follows the rules. His value investing relies heavily on accounting skills to find undervalued stocks. The biggest problem faced by analysts trying to evaluate disruptive business strategies is that analysts have to rely on traditional tools such as price-earnings ratios, debt levels, profitability, dividend growth, and balance sheet—they are no longer in strong growth when assessed All these tools are very useful when you are an established company. Analysts have to rely on these traditional valuation methods, because apart from that, they really have no other way to determine the "fair market value" of a company.
If you have ever studied in the financial field, you will soon learn some financial formulas and valuation techniques that seem to show that calculating the company's fair market value is as reliable as reading the company's balance sheet. In my opinion, this training has inadvertently left the impression that calculating the "fair market value" of a company is a straightforward process. This is definitely not the case for disruptive companies.
Finding a "fair market value" is extremely difficult for companies that reinvest significant profits in rapidly expanding businesses. Buffett's value-based investment style relies heavily on the company's mature and conservative (or at least consistent) management approach.
In some fiscal seasons and even years, Amazon's huge investments are notoriously famous. They are investing in new markets and new business models. During these periods, substantial reinvestment has made financial analysis a mess. Because analysts and investors usually only have a rough idea of Amazon's reinvestment during the quarterly period, it is difficult to estimate its profitability and revenue growth.
Ark Investments' Catherine Wood (known for pointing out that Tesla's stock price will reach $ 7,000 in 2024) believes that disruptive technologies tend to span multiple different market segments, making it more difficult to determine the value of a company. Think about Tesla-is it a car company, an energy storage company, or a solar company?
It is also difficult to estimate the adoption rate of new disruptive technologies. If you combine adoption rates with companies involved in many disruptive new technologies, you will find that the difficulty of determining a fair market value can quickly increase.
I think most analysts will try their best to be fair and fair when making recommendations, but I know that analysts are under constant pressure to make certain recommendations. In the past, I have underestimated this pressure. error.
I know that analysts are under constant pressure because when I recommended mutual funds to independent fund consultants in the early 2000s (I'm a completely small person), I often faced undue pressure from mutual fund companies asking me to put them Of securities added to the dealer's recommended list. I think it's no different for most analysts working today.
On the other hand, some analysts just seem to like appearing in the news (or at least their brokers want to appear in the news), so sometimes, analysts make outrageous predictions on stocks they don't really care about, hope Other sources will quote their predictions.
Morgan Stanley says Tesla's stock price could fall to $ 10 in worst case scenario-May 21, 2019
I also underestimated the influence of lobbyists and big advertisers. Cable news media needs ratings to increase advertising revenue, and it also needs to please advertisers.
Am I directly blaming the cable news media for misrepresenting reports for the benefit of advertisers? No, but it's hard to believe that earlier reports on Amazon were completely "neutral." At that time, CNBC's big customers watched their business model slowly being swallowed up by a fast-growing, revolutionary business model like Amazon.
Don't believe it? Take a look at a recent article by Forbes Magazine entitled "Tesla's Share Price Could Fall to $ 0". Is Forbes just thinking for the public? Maybe this is just another article that attracts clicks, but I guess Forbes is not interested in people investing in a company that spends $ 0 on advertising.
Of course, the media plays an important supervisory role in government and business. Without the media, to a large extent, investors will have no protection against dishonest company executives. However, I believe that there should be due doubt when consuming media. Investors really need to ask themselves, "Who does this article really serve?"
In mid-2017, I lost a lot of money on energy stocks (oil prices dropped from about $ 80 to $ 40), and finally I asked myself a question:
Why am I still investing in the past? Why don't I start investing in the future?
Asking myself this question led me to start investing in disruptive technology full-time. Today, I'm glad I made this transition. However, to be honest, in the first few months of investing in a disruptive company full-time (the next few years actually), I faced a very big psychological challenge.
This is another often overlooked aspect of Warren Buffett's value investing style, and it is actually reflected in disruptive technology investments-he is very patient and will persist in investing long enough until it makes money. Value investing requires patience, as it can take years for the market to realize that a company's value is undervalued. This is no different than disruptive technology investments. The public needs time to embrace and incorporate new disruptive technologies into their lives.
I have owned my own cloud fintech company for many years. After experiencing the benefits of cloud computing for so many years, in mid-2017, I made the first disruptive technology investment in Microsoft and Amazon, and it was a fairly easy decision to place myself in the business models of AWS and Azure. When I invested in technology, the transition to cloud computing was already clear, and almost all business leaders thought that was the future.
In mid-2017, I made my third investment, this time more uncertain. Out of aversion to the dying energy industry, I invested a third of my net worth in Tesla. At that time, Tesla had released the Model 3, and its stock price also rose sharply. But shortly after I invested, Tesla encountered headwinds that Amazon had encountered years ago.
Analysts are generally unhappy with Tesla and Elon Musk. CNBC's report is also very negative. By 2019, public opinion seems to agree that Tesla will soon go bankrupt. Tesla has been plagued by short sellers for a long time, but with the increase in negative news, short selling behavior has also increased.
To be honest, I'm a bit scared. These accusations and allegations are frightening, and the prospect of losing so much money is worrying. Nonetheless, I continued to buy Tesla at a loss of value because I received an average cost profit from Microsoft.
Two things prevented me from selling Tesla. First, I feel very familiar with Tesla's attacks, and second, positive feedback from Tesla customers.
It's like I'm watching a replay of the attack on Amazon years ago. It's no secret that Tesla invested almost all of its profits into expanding various businesses as soon as possible. However, like Amazon, analysts and TV commentators have severely criticized this extreme growth model.
Jeff Bezos has been clear for years that Amazon's focus is on future growth, not short-term profits or dividends.
Nowadays, if we want to know something, we go to Google. However, this behavior did not occur overnight. Personally, it took me several years to automatically open a web browser to search for addresses, phone numbers, or services. In the comfortable living room, I spent more time browsing and buying products on Amazon. It was the constant positive feedback from friends, family, and peers that ultimately changed my habits.
It may take a long time before disruptive technology adoption becomes "normal", but if this technology continues to beat competitors for a long time, other companies in the world will sooner or later notice this.
Although Tesla has suffered a lot of negative publicity, it is difficult to ignore the satisfaction of Tesla customers. Tesla owners have posted a lot of positive comments on YouTube, and the channel is constantly growing. This shows that Tesla can not only win new customers, but also transform customers into advocates for the brand. These fast-growing channels show that Tesla's early adopters are successfully transitioning the masses to this new disruptive technology.
When the community experienced its first serious setback, the media began to oppose Bitcoin.
Although some critics believe that other cryptocurrencies are technically superior to Bitcoin, this product is indisputable. It is completely decentralized (a must for most Bitcoin supporters), and since it was listed first, Bitcoin has millions of passionate supporters from all over the world.
As with all disruptive technologies, it is almost impossible for Bitcoin to be priced fairly. Bitcoin is not even a business. The increase in the value of bitcoin is only due to the slowdown of new bitcoin mining, the unexpected loss of bitcoin, and the number of people who want to hold bitcoin more than those who want to sell bitcoin. In other words, value is driven entirely by scarcity. In the long run, Bitcoin proponents believe that this scarcity will bring serious positive pressure on the price of Bitcoin.
The government hates bitcoin, and it has inflicted deep hatred on the government and the “power” because they do not want to weaken their control of power in any way.
- Like almost all disruptive technologies, I think there are two almost contradictory risks for investors-first, will the price of Bitcoin be as high as predicted by Bitcoin fans? Second, do I have enough time to get enough Bitcoin before the price becomes unaffordable?
Although I don't have any bitcoin at the moment, I'm seriously considering accumulating a few bitcoins in case the price is really as predicted by Bitcoin fans.
Focus more on business opportunities and less on stock prices. If you have good reason to believe that this technology will be adopted by more people in the future, the value of this business will eventually rise as revenue increases.
Remember, the timing of buying stocks in disruptive technology companies is notoriously difficult to grasp. If you choose the wrong time, don't blame yourself. If you believe in this technology, stick to your investment, resist the temptation, and avoid selling prematurely. If you don't have a lot of money, then try to buy small amounts regularly using the average cost method. This strategy will give you the best average price, especially when your investment price starts to fall.
Try to ignore the media. Instead, focus on customer feedback. If customers are enthusiastic, this is a good sign that technology will continue to move towards mass adoption.
Have a long-term perspective. Don't invest the money you think you will need next year. Invest only with money you won't use in a few years.
- Don't invest more than you can afford to lose. Looking at myself in the mirror, honestly asking myself, "If this investment becomes $ 0, will I be fine?"
This article was originally published on the Medium blog, and was translated and shared by InfoQ Chinese with permission from the original author.
Original link: https://medium.com/swlh/amazon-tesla-and-bitcoin-914b4429f2f1