Market Strategy – Capitalism in Action
“If you don’t risk anything, you risk even more” – Erica Jong
In This Issue:
- Strategic Resources/ News
- Global Macro
- Contrarian View-Points
Strategic Resources/ News
For up-to-date news on Market Insights, see my twitter postings:
- 1) Nine Ways To Light Your Creativity ON FIRE
- 2) Open your mind – TED
- 3) Being “Right” vs. Making Money
Recently I read a Harvard Business Review (HBR) article titled The New M&A Playbook by Clayton Christensen (& others). While HBR typically resonates mostly with C-Level executives, a phrase certainly caught my attention: Why Disruptive Businesses Are Worth So Much. Reading on, the article stated “What produces a dramatic increase in a company’s share price? Growth that investor’s weren’t predicting”
And, in my opinion, they’re absolutely right. Disruptive innovation can create astronomical (and unexpected) profits, thereby driving share prices through the roof. This begs the question – how do you find disruptive companies to trade? Naturally my crystal ball is missing, oh wait a minute – I don’t have a crystal ball, and neither does anyone else. So let me offer some of my opinions on how to find Game Changers.
Game Changers by nature are elusive and may arise from a variety of factors involving PEST (Political, Economic, Societal, Technology) variables. Let’s take technology as a prime example, since it serves up a huge slice of Game Changers. Consider NetFlix (NFLX), a movie rental business. In its’ infancy (IPO – 2002), NetFlix didn’t really change the industry much – in fact, it lost money. Instead, it slowly crept into our living rooms, and before we knew it, millions were renting and then later – streaming movies all over America. Or look at Apple (AAPL) and how it rose up from the ashes.
By the mid-1990′s Apple was essentially left for dead. Then in 1997, Steve Jobs rejoined Apple as interim CEO and he later jump started Apple with the introduction of the iPod in 2001, which was the first of Apple’s long line of “i” products. Apple’s stock soared from about 2003/2004 until the 2008 market massacre. As the markets turned bullish, Apple sprang back to life yet again – up, up, & away. For a brief moment in time, Apple even became the most valuable company in the world – even more than mighty Exxon Mobile (XOM).
Finding the Next Big Thing, I’m sorry to say, is not easy. Yet, there are ways to improve your odds:
1) Burn the midnight oil. Research looks to be the best way to spot Game Changers because until they hit the spotlight they are mostly ignored by analysts and the main-stream media. And, by the time they hit the spotlight – the price’s already rocketed. Look at up and coming shifts in the landscape. For example, GRIN (Genomics, Robotics, IT, Nanotechnology) represents a cluster of technologies that are reshaping the world we live in. Read Blogs, Newsletters, and Magazines (on-line of course). Watch videos on forthcoming technologies – i.e. MIT, TED, and other cutting edge stuff.
2) Think Deeply. Between reading and action comes Thinking
“Thinking is the hardest work there is, which is probably the reason why so few engage in it” – Henry Ford
This seems to be the missing link among many traders.
Here are some things to think about:
1) What’s the size of the potential market? If the potential market is too narrow, then it doesn’t matter how great the breakthrough is, enough profit just won’t materialize.
2) Ask yourself, what’s so special about the product (service)?
3) How will the company fend off competitors? If it can’t, then profits may fizzle and the stock crashes.
4) Hold on tight and let it ride.
Game Changers may lurch forward suddenly, tempting traders to take a quick profit. Of course, there’s nothing wrong with taking profits – but to fully capitalize on the full potential of Game Changers may take months or even years.
Financial Markets are full of opportunities and Game Changers lurk beneath the surface all over the world. Political winds shift, Economic growth soars, stagnates, and crashes, Consumers are fickle within various Societies around the world, and Technology is often at the forefront of change as it brings the impossible to life. The key to finding the Next Big Thing is Research, Thinking, and going the distance. The past may offer some inkling into the future, but there’s much more below the surface – you must dig, and dig, and dig – then, and only then do you stand a chance of uncovering future rocket stocks.
I absolutely love stimulating the minds of my fellow traders and exploring Global Markets – I hope you do too. Please feel free to email me with your comments or feedback. Until next month!
Duality is a key concept in thinking as a contrarian and that’s really important in looking at Threats and Opportunities.
Aman Motwane is the author of The Power of Wisdom – When you change how you see the world, your whole world changes. This is especially true in the financial markets thanks to that ever-pervasive emotional state called confirmation bias. A lot of people, including traders, are locked into seeing what they want to see. Even worse is the fact that humans are ruled by herd instinct; which is why Fear, Hope, and Greed continue to drive the financial markets.
Duality looks at the concept that nothing exists without its opposite! Look at a coin – it has two sides, yet nearly all of us think in terms of heads or tails, but not heads and tails simultaneously. So many traders lock in on a certain view of the market, be it bullish or bearish, and stubbornly cling to any information that confirms their viewpoint. They follow the herd instinctively. They watch the same TV programs, they read the same blogs and newsletters. And of course they religiously follow Investor’s Business Daily or the Wall Street Journal.
The problem is that “If you do what everyone else is doing — if you read what everyone else is reading — then by definition, you will be stuck at ordinary.” And that’s what most traders (not Byvation readers of course) end up accepting – average performance.
“A trader should have no opinion. The stronger your opinion, the harder it is to get out of a losing position” – Paul Rotter
Using duality, you could go one step further and hold two opposite opinions at the same time, and then let the market tell you which one is right. Visualize in your mind both scenarios – the market soaring and the market crashing – then look for clues as to which one is right. In doing so, you’re letting the market tell you what moves to make. Plus you can use duality to look at the various ripple effects within markets.
Every move in the markets sends out a cascading set of waves throughout other markets. Everything doesn’t go up and everything doesn’t go down – money must flow somewhere. The financial markets are one entity – the market for money. If one company crashes, others will benefit – the key question is which one(s). If a certain commodity goes up/ down, the question to ask is who will that help/hurt – then move on to explore the rippling effect through the markets. And, be ready to switch to your other opinion just as quickly if the market says that opinion is the right one (at the moment).
Although duality may be somewhat obscure, it can be a powerful tool in your ability to think outside the norm – resulting in above average, maybe even stellar performance. I sincerely hope this stimulates your trader’s mindset. Up, Down, Up, Down … that’s the market for you. Hope you’re out there looking at the flow of money – where’s it going – and then capitalizing on those insights.
Best of luck out there in the trenches and drop me a line sometime.
All material in Byvation is for informational purposes only. Any and all
ideas, opinions, and/or forecasts, expressed or implied herein, should not be
construed as a recommendation to invest, trade, and/or speculate in the markets.
Be advised that Michael Davis and/ or Brencom Business Technologies, Inc. will
not be held responsible for any investment actions that you take as a result of
any information mentioned in Byvation.
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“It is not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again because there is no effort without error and shortcomings, who knows the great devotion, who spends himself in a worthy cause, who at best knows in the end the high achievement of triumph and who, at worst, if he fails while daring greatly, knows his place shall never be with those timid and cold souls who knew neither victory nor defeat.” – Theodore Roosevelt
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