Happy Saturday everyone!
One of the first things I’ve done post-holiday was to catch up on Packy McCormick’s excellent Not Boring newsletter.
Here’s a nifty stat that caught my eye in one of his posts:
As they say, a picture speaks a thousand words.
In this case, it tells us the following:
You can buy Apple. By all accounts, a great company, possibly one of the best ones that ever existed.
But, on the other hand, for the price you would pay for Apple, you could buy every single other unicorn out there.
Talk about a conundrum.
On one hand, you’ve got a proven winner that’s been going from strength to strength for the past 20+ years.
But on the other hand, you’ve got 797 other companies, each valued at $1bn+, each with a visionary founder, a superstar team, and a proven ability to scale.
Which would you go for?
Now here’s the really interesting bit – I have seen this chart before.
As a matter of fact, I’ve seen it all the way back in 2015, which feels like a century ago now:
Apple’s staying power has been nothing short of astounding. Ditto for the other Big Tech players.
All of us have heard stories of folks (including some of the commenters on this blog) who have ditched the world tracker and even the S&P and just piled into the five or ten tech names.
So far, it’s a strategy that has paid off handsomely. Well done to those who had the foresight – and held their nerve.
But if there’s one thing history tells us, it’s that the circle of winners always changes.
The GMs and the IBMs of the world give way to the GEs and Exxons. Those, in turn, cede their ground to brash technology upstarts.
No one knows what will happen going forward. But if you are tempted to pile into the tech sector after a decade of outperformance, you might want to tread carefully out there.
Have a wonderful weekend all – and here are some top-quality reads to get it started:
From Yours Truly
The First Million Is The Easy Bit
Should You Put Your Property Investments In A Corporation?
Building Wealth
Magic Beans – The Reformed Broker
Should You Borrow To Fill Your ISA Each Year? – Monevator (by the ever-excellent Finumus)
Even Richer People – A Wealth Of Common Sense
Salaried – Indeedably
Early Retirement
Getting The Goalposts To Stop Moving – Morgan Housel
New Blogger Feature
Today’s new blogger isn’t exactly “new”.
As a matter of fact, he’s been writing for more than five years – and has been a frequent, thoughtful commenter on this blog as well.
The best thing about Steve Ark at Slightly Early Retirement is that he has depth.
The kind of depth one only gets after walking the walk, after being in the trenches for a long time – and coming out with one’s mission accomplished and head held tight.
You can’t fake this stuff. Give it a read and you’ll see what I am talking about.
Grit Doesn’t Win – Steve Ark
“Do not get me wrong, grit is not a bad thing.
It’s very handy when you are required to do something that is not fun in the least, as we all are called upon to do.
But nobody is going to excel in life by doing things they hate.”
(Fellow bloggers – see below if you’d like to be featured here in the future)
Lifestyle Design
“If I could map my life from the moment my son was born to its end and compress it into one 24-hour period, it would probably look like this:”
24 Hours – Bull & Baird
Also:
Not A Capital Idea – Humble Dollar
All Around
“Everything is moving so fast out there. But what if it’s just getting started?”
It’s a helluva long read. But as far as helping make sense of the world we live (and will live) in, it’s a great one:
Compounding Crazy – Packy McCormick
Recommended Books
As always, let’s finish off with some top-notch books.
Business Adventures: Twelve Classic Tales From The World Of Wall Street – John Brooks
The Basic Laws Of Human Stupidity – Carlo Cippola
The last one has nothing to do with money – or investing.
But… I am working my way through it right now and it’s absolutely riveting (if you are a sci-fi fan):
Project Hail Mary – Andy Weir
Happy weekend all!
P.S: Attention New Bloggers:
if you are a personal finance blogger who hasn’t yet been featured on Greatest Hits, I would like to hear from you.
Please send an email to bankeronfire at gmail dot com with a blog post you would like to submit for consideration.
The key criteria for inclusion are as follows:
(i) Content that will be interesting or beneficial to the readers of this blog (I hope you will forgive me for reserving judgment on this one)
(ii) Your blog must be at least 6 months old, with regular posts. Too many bloggers flame out early, and I don’t want the readers here to follow a bunch of dead links.
I look forward to hearing from you.
Note: the above post may contain affiliate links. You can read up about our affiliate policy here.
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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You know how in finance classes, you have to make sure to use something like 2% for “growth rate,” because otherwise, they will eventually become the actual country? Maybe Apple is well on its way there and in 5,000 years, Apple will have bought Google, Amazon, Facebook, Tesla, etc.
Who knows? Just a thought.
This reminds me that I do see terminal growth rates of 3-4% in equity research these days
Not sure how anyone can justify those…
TBH I think technology companies – and in particular *software* companies – will be here to dominate for a while. The reason behind it is more fundamental, I think:
– Software companies have a very high margin, and not much holding costs. Other than employees, they don’t have much expenses.
– With massive margins, software companies can afford to make a lot more mistakes than a bunch of other sectors.
– Assuming some competence, the ‘winners’ will have a bunch of profits that they can use to innovate further on. These innovations also likely follow the very-high margin model (i.e. just doing more of what they’re good at). They can also innovate with a lower margin model with no risk of ruin even if it fails completely as they sit in a massive stack of cash. If these lower-margin models succeed, they can crowd out competitors in other spaces simply by having more resources.
I think the software sector has the highest potential growth engine (due to margins), and they can continue to create new growth engines if they’d like. 3 potential dangers I see are:
1. Poor execution that kills even their massive cash stacks.
2. Software tech sector will win, but which company? There are so many.
3. Regulation / govt intervention of very big companies like Apple, etc. by the government, forcing their margins to go down.
Until then, I think they’ll continue to dominate until there’s another business model where the ROI on capital is even more efficient than having people pay for software.
I think the software business model is one of the best / most resilient out there, due to the reasons you point out + a massive ability to scale at little incremental cost and low distribution costs.
Transitioning to SaaS delivery and architecture models will only entrench leading software businesses even more.
There’s a reason firms like Thoma Bravo don’t touch anything other than software…