The past couple of weeks have been fascinating to watch as someone who enjoys investing in the fast-paced technology sector. I’d like to touch upon four events that affected my model portfolio recently, from which I believe there are important investing lessons to be learned.
Invest in the industry leaders
When I pick a company for my portfolio, I usually tend to do so because of an important technology trend that will affect the whole world. Sometimes there is only one obvious company to invest in, but oftentimes there are several.
The ability to go from traditional pay TV to streaming movies and TV shows on demand is compelling to tens of millions of Netflix Inc. subscribers. But they’re not alone in the market. Netflix has dropped almost $100 (U.S.) from its peak and trades at about $360 as I write this. The past week has been especially painful for shareholders as both Amazon.com Inc. and Apple Inc. have made headlines with a potential ramp-up in competitive effort. Amazon is expected to unveil a streaming media device this week, while Apple is believed to be in talks with U.S. cable giant Comcast for a Web-based TV service on the Apple TV platform. Since I have positions in Netflix, Apple and Amazon, I feel more insulated. But I’m not worried about the future of Netflix. They’ve barely started down the road to international expansion.
Invest in visionary management teams
Just one month ago, Facebook Inc. decided it was worth spending $19-billion to acquire the leader in mobile instant messaging, WhatsApp. The intention, as chief executive officer Mark Zuckerberg has laid out, is to displace the global SMS market and bring the next billion users onto Facebook’s platform. The deal shocked almost everyone who follows the industry, including me. So, perhaps we shouldn’t be shocked that Facebook just agreed to pay $2-billion to acquire Oculus VR, a company that makes a virtual reality headset. The Oculus Rift was designed for gaming, and Facebook believes this is an area it should be investing in because their long-term vision goes beyond mobile apps.
I never would have predicted this transaction, but I love the concept of Facebook owning a social network with potentially the world’s best immersive 3-D gaming experiences. It’s a nice reminder that Facebook is managed by people who think really long term, which resonates with me.
Stock splits are irrelevant
Google Inc.’s stock is splitting for the first time ever. The split takes effect after the close on April 2. When big companies split their stock, the financial media seem to think it’s newsworthy. The next time somebody excitedly brings up a stock split in conversation with you, interrupt them with an energetic story of how you once ordered a pizza and decided to cut it into 12 slices instead of six. Explain that your half-share of the pizza was now six slices instead of three, which more appropriately satisfied your hunger. Sounds silly, doesn’t it? There are much more important things to focus on when looking at stocks.
Politically targeted business threats can remind us just how disruptive a new player is
Tesla Motors Inc. has become quite successful at selling its Model S electric sedan through a network of its own stores. This differs from the dealer franchise network that most U.S. auto makers use to sell their cars. People often compare Tesla to Apple because of this retail strategy. But in several states Tesla has run into legal trouble because automotive manufacturers and dealers have fought this direct sales model. They have argued, somewhat successfully, that Tesla should be forced to sell through an independent dealer channel. This is like forcing Apple to sell its gadgets through independent retailers and close its company-owned stores. In the short term, this seems like a real business threat to a portion of Tesla’s U.S. sales. But I believe the competition would not be fighting unless Tesla was a real threat to their long-term future.
Whether it be streaming media, 3-D gaming or electric cars, my portfolio has seen a lot of action lately. But more important, I think, are the investing reminders that come with all of this action.