The Cheat’s Way to Get Rich
Another day, another Amazon high.
The Seattle heavyweight went over a trillion dollars in value in US Tuesday intraday trade.
When will this freight train slow down?
I don’t know the answer.
I do know one thing: Amazon now appears to have its sights set on breaking the Facebook/Google duopoly over online advertising.
This could open up the potential US$88 billion digital ad market.
How such an enormous company can still have so much potential growth in front of it is a wonder of the modern economy.
It also poses an interesting dilemma for the people that keep calling the US market down.
So many American companies just keep clocking great numbers.
That’s not the picture you get from the wider macro view of the world.
There are plenty of scary stories out there.
The emerging markets are not a happy place right now, across the board.
China is forever sending mixed signals around debt and trade. Things seem a bit wobbly.
But you could have said that at any time over the last eight years.
Hence the expression: bull markets climb a wall of worry.
Staying out of stocks over this time frame would have been a very expensive mistake.
I believe it’ll be an expensive mistake over the next eight years too.
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Here are some facts.
Profits of US companies rose by almost 25% in the first half of this year.
Australian companies have grown earnings by about 9% in 2018, according to Don Stammer in The Australian.
This is real money that real companies are making. Those are the numbers I trust. Alternatively, I’m not so sure most macro analysis is useful for that much, except a long list of ways to feel afraid you’re going to lose your money.
To me, it’s much better to accept that stocks are a volatile and bumpy ride. If you’re going to accept the risk of putting your money on the line, make sure it’s worth it.
That means finding trends that can run for a long time, in a very powerful way.
The US stock NVIDIA Corp [NASDAQ:NVDA] is a good example of this.
It’s up 1,000% since 2016.
It’s had an incredible run for what was an already established business. It may not even be over for a while yet, either.
The reason is that its GPU chips are currently the go-to product for training artificial intelligence algorithms.
As investment in AI booms, so do Nvidia’s sales.
That’s the power of the right trend.
Another one to consider on this scale is the uptake in electric vehicles.
According to Bloomberg, sales here are still niche in terms of the global market.
But the last million in electric car sales have come in the last six months.
The first million in sales took five years!
If there’s one thing we can say about the investment markets, it’s that they aggressively pursue growth opportunities.
Capital will keep flowing here.
We can see this playing out on the Aussie stock market right now.
Graphite play Syrah Resources Ltd [ASX:SYR] just raised $94 million to continue the ramp up of its Balama project in Mozambique. Graphite goes into the batteries needed to run the electric vehicles.
Then we have the curious case of English company Dyson and its plans to invest £2 billion into building its own electric car.
The potential release date is 2020-21.
Because of the design of electric cars, they require less parts and suppliers. That incentivises new entrants into the market because starting a new operation is simpler.
However, simple does not mean easy.
There’s no doubt that Tesla has the lead where it matters most — in the data its Autopilot 2 cars are constantly feeding back to headquarters.
Tesla’s cars are on the road right now, and Dyson’s are not.
That’s not to say Tesla will maintain its early lead.
It’s one thing to be a differentiated brand and product when you’re essentially THE electric car company.
What happens to Tesla when all cars go electric?
Nobody’s quite sure.
We can take an early stab at things to say the first line of disruption will be the existing businesses in the engine business — component suppliers, for example.
Their market is going to start shrinking.
The capital previously allocated here will likely be absorbed by the new key suppliers – those producing the raw materials going into the batteries that replace the fuel tank.
But even electric car batteries are likely to become commodified in the same way regular batteries are now.
Nobody really cares which one is in there, and it’s unlikely any one manufacturer will be able to hold a competitive advantage over the long-term.
Perhaps there’s one caveat to all this.
The competitive advantage could come from government, and not genuine innovation.
Patents are a way to increase profits and keep competition out.
A lot of men and women have used the power of government to enrich themselves over the years.
Often too, investors watch patent applications to get a sense of where research and development money is flowing, and breakthroughs likely.
Right now, I’m doing just that.
There’s reasonable evidence to suggest that Uber might have a key patent about to be released.
I can’t say for sure, except to say that if the dots I’m connecting hold true, they’d have a lock on the next uplift in transportation about to happen worldwide.