Technology is reshaping every industry and its dynamism and impressive growth rates make it a must-consider sector for virtually every investor. But how to build a portfolio of assets in this ultra dynamic asset class. Here are some pointers:
1. Follow adoption, not hype
Believe what you see not what you hear. 44% of humanity now has a Smartphone and you can see it. And people spend between 5 to 12 hours per day on that device. Mobility is a trend which already is redefining things that we can do using that device. One could have easily invested in Apple after seeing early adoption of i-Phones and still made a killing.
But beware of buzzwords. Every year people come up with new buzzwords that seem like the next big thing. They are usually technologies looking for a problem to solve. Block-chain, 3D printing, Internet of Things, etc. People claimed that 3D printing will disrupt the entire manufacturing industry in China and bring the manufacturing back to the "First World". Unfortunately, I only saw people printing neon coloured figurines for testing. It is still too expensive to go mainstream. Maybe some technology breakthrough will make it cheaper and then it can get adoption in mainstream. Until then, stay away. Another very latest addition to this hype is ICOs ( initial coin offerings). People are selling shares in their companies against Bitcoins. As interesting as it sounds, it is no different from crowdfunding. Equity crowdfundings so far have failed miserably. It is almost impossible for "crowd" to understand early stage companies. Even VCs with significant minority get class rights to protect themselves. How will these minority shareholders protect themselves without any regulation in place.
2. Stay super agile:
Technology has a rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for long. Winners can quickly become losers and declared losers can make pundits look like idiots.
Groupon launched in 2008 and went for an IPO in 2011 at a valuation of $12.7 B at a per share price of $20. By the end of 2012, its stock traded less than $5. Facebook launched its IPO in Feb 2012 at $38 per share. However, its share price quickly dropped to $17.55 per share in Sept 2012. This seemingly loser is now priced at $172.45.
Agility of tech companies can turn around the futures pretty quickly. Microsoft was founded in 1975 and more than a few tech writers have already penned its obituary as a leader in the field. But appointment of Satya Nadela catalysed the stock into a new territory. Apple was left for dead in the 1990s due to the dominance of the WinTel duopoly, but sprang back to vigor with its innovative smartphone products.
3. Knowing which Metrics to chase
Technology companies that are doing well will never be cheap according to the analysts who track traditional mature companies. The way to analyse technology companies is to know the metrices that really matter.
When looking for platforms, the metrics should be its leadership position. Winner takes All. Google controls 80% of search market globally as against Bing which claims about 10%. When looking for SaaS companies, the most important metrics are growth and churn rates. Similarly, for a lending platform it should be growth and default rates.
Pro Tip: Bet on yourself. Yes, if you use a product or service and absolutely love it. Just invest. You will not regret.
1. Follow adoption, not hype
Believe what you see not what you hear. 44% of humanity now has a Smartphone and you can see it. And people spend between 5 to 12 hours per day on that device. Mobility is a trend which already is redefining things that we can do using that device. One could have easily invested in Apple after seeing early adoption of i-Phones and still made a killing.
But beware of buzzwords. Every year people come up with new buzzwords that seem like the next big thing. They are usually technologies looking for a problem to solve. Block-chain, 3D printing, Internet of Things, etc. People claimed that 3D printing will disrupt the entire manufacturing industry in China and bring the manufacturing back to the "First World". Unfortunately, I only saw people printing neon coloured figurines for testing. It is still too expensive to go mainstream. Maybe some technology breakthrough will make it cheaper and then it can get adoption in mainstream. Until then, stay away. Another very latest addition to this hype is ICOs ( initial coin offerings). People are selling shares in their companies against Bitcoins. As interesting as it sounds, it is no different from crowdfunding. Equity crowdfundings so far have failed miserably. It is almost impossible for "crowd" to understand early stage companies. Even VCs with significant minority get class rights to protect themselves. How will these minority shareholders protect themselves without any regulation in place.
2. Stay super agile:
Technology has a rapid cycle of obsolescence means that winners and losers in technology do not necessarily maintain those positions for long. Winners can quickly become losers and declared losers can make pundits look like idiots.
Groupon launched in 2008 and went for an IPO in 2011 at a valuation of $12.7 B at a per share price of $20. By the end of 2012, its stock traded less than $5. Facebook launched its IPO in Feb 2012 at $38 per share. However, its share price quickly dropped to $17.55 per share in Sept 2012. This seemingly loser is now priced at $172.45.
Agility of tech companies can turn around the futures pretty quickly. Microsoft was founded in 1975 and more than a few tech writers have already penned its obituary as a leader in the field. But appointment of Satya Nadela catalysed the stock into a new territory. Apple was left for dead in the 1990s due to the dominance of the WinTel duopoly, but sprang back to vigor with its innovative smartphone products.
3. Knowing which Metrics to chase
Technology companies that are doing well will never be cheap according to the analysts who track traditional mature companies. The way to analyse technology companies is to know the metrices that really matter.
When looking for platforms, the metrics should be its leadership position. Winner takes All. Google controls 80% of search market globally as against Bing which claims about 10%. When looking for SaaS companies, the most important metrics are growth and churn rates. Similarly, for a lending platform it should be growth and default rates.
Pro Tip: Bet on yourself. Yes, if you use a product or service and absolutely love it. Just invest. You will not regret.
No comments:
Post a Comment