Investing Tools for
Investors Looking to Excel
10/21/02
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Investing Tools for
Investors Looking to Excel |
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This approach seeks to get in front of major technological, economic, or other societal change to determine companies best positioned to outperform the averages.
Some of these major themes are listed below.
Each trend creates winners and losers. Old high cost industry beset by cumbersome work rules suffer in a global economy. Telephone companies that do not upgrade their plant to provide high speed data access to the internet have lost customers to upstarts like Qwest, Level Three, and WorldCom. IBM lost its way in the 80's when it refused to recognize the new computing realities. Digital Equipment ended up seeing its stock destroyed when it ignored the ascendance of the PC and ended up selling to Compaq, which itself has been decimated by the new direct selling approach of Dell. Ultimately, deployment of capital to high growth industries can create many years of profit growth and stock out-performance if management does not get complacent. Management must approach these fast paced times as a mandate for reinventing themselves on a continuing basis. Management must not irretrievably marry themselves to a particular product, distribution channel, or business model when change is mandated. Microsoft, Cisco, EMC, Yahoo, Qwest and AOL have been the prime example of thematic investing that has produced great results. These stocks would also have been favored by GARP and Momentum Investing techniques. Let's look at the winners and losers of each theme.
The visionaries and futurists who can model the future and find the existing companies and upstarts that will best serve those themes will be major winners. Critique of the Style You can pick any number of upstarts whose management is inadequate, and whose vision is slightly off. Microsoft had the vision, the direction, and the commitment to stay on top. Big companies fail, in many cases, to reinvigorate and reinvent themselves sufficiently to take advantage of market changes. Thematic investing takes a lot of analysis to identify real themes and the companies that will win and those that will fall by the wayside. While Microsoft has left some major innovation to upstarts (Netscape for instance), it arrives once a need and demand is proven and generally decimates the upstart. Thematic investing is easy to say but most difficult to execute. But it is a major style that warrants serious effort. Finally, thematically correct stocks have valuations which imply excessively high expectations, which, if unrealized, can lead to stocks getting cut in half. |
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