Disclaimer: The content from The Daily Reckoning Australia’s global cast of characters is their own view and opinion. It is not to be taken as investment advice.
The Most Overlooked Investment Idea in the Market
Americans, seasoned risk-takers they are, can’t get enough of tech stocks. An entire index, the NASDAQ, is dedicated to tracking the sector.
It’s a far cry from how investors view tech companies on these shores. Many Aussie investors have seemingly pigeonholed tech companies as too risky.
But as the search for gains in an upbeat but volatile market intensifies, that’s starting to change. And it’s not hard to see why.
The tech sector has a storied history of unearthing tiny start-ups that go on to become household names.
Think Alphabet [NASDAQ:GOOGL], up almost 2,000% since listing in 2004.
Or Amazon.com, Inc. [NASDAQ:AMZN], up a barely-believable 48,000% since listing in 1997.
Or even Big Un Ltd [ASX:BIG], the Aussie company that shot up an impressive 1,226% last year.
These companies are not just stock market success stories that have made investors life-changing gains. In some cases, they’ve redefined how we live and communicate.
And yet this sector doesn’t get anywhere near the love that banks, telcos or resource stocks do on the ASX.
Is that because Aussie investors are too averse to risk?
Is it because they think tech companies need a Silicon Valley zip code to be successful?
Or is it because they still have the dotcom crash fresh in their memory?
There was a time, you may recall, when any company that had ‘dotcom’ in its name was basically printing money.
Yet when the tech bubble popped in 2000, investors didn’t want a bar of tech stocks.
It’s similar to what’s happened with cryptos. Too many coins tried to ride the Bitcoin gravy train. But not every crypto is like Bitcoin. And not every tech company is Microsoft.
Far too many thought they could pitch themselves as innovative start-ups and watch the money flow in. They seduced the market for a while but, when the market crashed, do you remember what happened?
Just as with cryptos today, most of the market turned on tech stocks.
Yet there was a small group of investors that stayed the course.
They understood that junk start-ups needed to be purged for the sector to flourish. In doing so, they’d clear the way for companies that provided real value to consumers and investors alike.
They also knew something else, too.
That in order to succeed in the market, you had to understand the importance of ideas.
You see, everything in the market boils down to ideas.
Every company listed on the ASX has a core idea behind it.
This idea is the driving force behind the company think bank provider for Google’s CBA search engines or for Ebay’s cheap online global delivery warehouses.
Whether it be a product or service, this idea must provide some value to the average man or woman on the street.
In truth, most companies have an idea. But not every idea is good. Some ideas are better than others. Others still have the capacity to change the world.
When you understand this, you realise that the ASX is a storehouse of ideas, not companies.
In fact, you learn something even more important: Ideas are funneled into sectors by their quality.
In theory, market sectors are split into industries. In reality, they’re separated by the quality of their ideas.
The energy sector, for example, is primarily home to miners, big and small. These miners are all after one thing: unearthing the next mother load. And well, that’s it.
They stick a drill in the ground and hope for the best.
Then there are the banks, which dominate the financial sector. Their primary concern seems to be figuring out how to add more fees to existing customers.
Same for the utilities sector. And telecommunications. And consumer staples. And, well, you get the point.
Would you say these are big ideas?
Far from it.
In fact, all these sectors rely on the tech sector to supply their innovation.
Robo-advisory in the financials sector? Tech companies.
New mining exploration devices in the mining sector? Tech companies.
Self-serve checkouts in the consumer staples sector? Tech companies.
Everywhere you look, tech companies lead the way.
That’s down to the QUALITY of their ideas.
This takes on even greater importance in a market going sideways because great ideas are what boost productivity, profits and share prices.
You could even argue that the quality of ideas has a bearing on the quantity of returns.
So, assuming that’s the case, what’s the best idea in the market today?
In our view, nothing comes close to artificial intelligence and, in particular, machine learning.
Wherever you look, from Apple’s Siri voice-powered assistance to Google’s personalised advertising algorithms, AI and machine learning is seeding itself into every part of our lives.
Yet this is only an appetiser for what’s to come.
Faster, better, stronger
Like many people, your first glimpse of the true potential of machine learning probably came when IBM’s Deep Blue computer beat Russian chess grand-master Gary Kasparov in 1997.
This was followed up when Watson, another IBM computer, bested two champions in a game of Jeopardy in 2011.
Many people were left shocked by Watson’s win. Not least because a computer program beat a human opponent in a game that seemingly required lateral thinking.
In truth, Watson’s win wasn’t that special.
It was an example of what’s known as ‘weak’ artificial intelligence.
This refers to AI that appears intelligent but is actually just executing programmed commands.
Watson is an example of weak AI. Self-driving cars are another. Anything that requires tasks to be entered manually is weak AI.
There’s no doubt that a lot of money is and will be made by companies involved with developing weak AI applications.
But the real prize is ‘strong’ artificial intelligence.
This is where the lines truly begin to blur where a machine’s intellectual capacity becomes equal to that of man.
Unlike weak AI, strong AI embodies learning by doing.
It doesn’t require much technical explanation because the best way to imagine strong AI is to think of it as a blank slate no different to a baby child.
Which is to say that the potential of strong AI is boundless.
Right now, weak AI is at an advanced stage comparatively to strong AI because it has more useful applications in everyday life. But that won’t always be the case.
Strong AI will allow programmed medical industry practitioners to store a database of your medical history which can be cross-referenced with vital signs in seconds, giving unparalleled insight into your health.
And it will create machine ‘reporters’ capable of parsing through millions of sources instantaneously, giving you a unique insight into global events in ways that are impossible today.
These are just two examples. But no industry will remain untouched.
In our estimation, we’ve seen less than 1% of the potential for AI and machine learning.
If Amazon’s share price was able to rise 48,000%, just imagine where the company that unlocks the true potential of machine learning could end up.
That’s why it’s so crucial to scope out the best opportunities in this space today before the truly groundbreaking innovations start making their impact on the world.
These are the kinds of opportunities that keep The Daily Reckoning Australia’s chief editor Callum Newman up at night.
He’s dedicated his entire career to unearthing the tiny gems that go on to make investors life-changing wealth.
Yet his message of making money amid a sea of uncertainty in today’s market has often been at odds with broader themes presented in The Daily Reckoning Australia by Jim Rickards and Shae Russell.
That’s why Callum is putting the final touches to a brand new — and free — daily email newsletter that he’ll be unveiling over the next few weeks.
In short, it’ll be a daily newsletter dedicated to scoping out the ASX for the best opportunities in the market today. After all, there’ll always be opportunities to make money in the market no matter what the investing climate.
In fact, that’s why the strap-line of his new free daily investment is: There’s Always a Bull Market Somewhere.
His aim will be to take you on the road with him each day in order to find the latest and hottest bull markets.
Callum will reveal all in the coming weeks, including how you can be part of this exciting new project.
And don’t worry; nothing will change here at The Daily Reckoning Australia. You’ll continue to receive all the best macro analysis from Jim, Shae and Nick Hubble.