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Chris Umiastowski. (Deborah Baic/The Globe and Mail)
Chris Umiastowski. (Deborah Baic/The Globe and Mail)

STRATEGY LAB

Volatility: The growth investor’s friend Add to ...

Chris Umiastowski is the growth investor for Globe Investor’s Strategy Lab. Follow his contributions here and view his model portfolio here.

As 2012 draws to a close, I’m feeling optimistic. The Mayan predictions about the end of the world were wrong, and I look forward to another year of health, happiness and growth investing. But it’s still important to keep an eye on where things are going, so I’d like to offer you a few big picture predictions about the coming year.

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Early success (and early days)

If you’re paying attention to the Strategy Lab model portfolios, it’s no secret that mine exhibits the most volatility. As I write this, my biggest loser is Apple Inc., down 22 per cent since the portfolio launch. To put things in perspective, my second-biggest loser so far is small-cap Sierra Wireless Inc.(down almost 9 per cent). My only other losing stock, Amazon, is off less than a single percentage point.

My biggest winner has been Netflix Inc., up 67 per cent, closely followed by Redknee Solutions, up 64 per cent.

Excluding my latest addition, Priceline.com, which has only been in the portfolio for a few weeks, I have four out of eight stocks that have moved by more than 10 per cent since the mid-September launch.

I may have the highest returns of my colleagues so far, but we’ve only just begun. I believe in the investments I’ve chosen, but I’m keenly aware of how volatile growth stocks are.

Remember, though, that volatility is not the same thing as risk. To a long-term investor, volatility is your friend. It offers an opportunity to invest more when great stocks get beaten up.

Social media will gush cash

I’ve written about Google Inc. and Facebook Inc., the two largest social media companies in the world.

In 2012 we saw fantastic progress by both companies, especially in their ability to monetize mobile device users.

I expect 2013 will mark a time when these companies get even better at ringing the cash register from mobile users, either through geo-targeting, social sharing, or something we haven’t seen before.

Twitter will also be in the spotlight, especially if it decides to do an initial public offering. Even if I decide not to invest, I look forward to reading the prospectus and gaining some insight into how Twitter plans to capitalize on its more than 200 million users.

The decline of Microsoft

With Google and Apple dominating the mobile scene, life for Microsoft will only get harder. The rise of tablet computing will only add to the pressure on the company. I think it will be nearly impossible for the company that Bill Gates built to maintain its relevance over the next decade.

Cutting the cable accelerates

A study by Deloitte suggests that 9 per cent of survey respondents in the U.S. have cut their cable TV subscriptions, while another 11 per cent are considering it.

The trend is obvious. People prefer to subscribe to services like Netflix and Amazon Instant Video, and it’s getting ever easier to connect our computers to our television screens with a $99 Apple TV set top box and proprietary AirPlay technology that wirelessly transmits video from a Mac, iPad or iPhone to your TV.

Cable TV’s grip on sports events and news may be stopping a lot of people from making the switch. But what happens if big deals start happening next year, giving more options to get this content online? More cables will get cut. It’s inevitable. This will force cable companies to move into content ownership more heavily, or turn them into “dumb pipes” that provide bandwidth. Either way, it’s not good news for them.

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