Back in the day, way back in the day, I used to be a fund manager. The stock market was an unimaginably different place then, no tech behemoths, not much tech since R&D spending was widely regarded as a waste of money.
What was noticeable was the staggering amount of in-depth analysis carried out by analysts. On a big company like GEC or ICI the reports coming in were like not so small books. Nobody read them. We invariably went straight to the summary or the conclusion.
A problem with this type of analysis, as well as being mind-numbingly boring, is that it doesn’t give you any insight into whether the shares are cheap or dear or should be bought or sold. So why do it? It was partly done to try and establish a stockbroker as the right firm for that company so they could participate in lucrative corporate activity like fund raising and mergers and acquisitions.
The other reason was to establish themselves in the eyes of fund managers as the expert in a particular share so that large orders to buy or sell would come their way. There was not really any particularly effective decision process for deciding whether shares were a buy or a sell.
Shares in small companies were traded on the basis of insider information exchanged at the golf club or wherever. Shares in large companies were bought and held on the argument that you will never go wrong holding ICI. Weightings, the amount of shares held, were often determined on the basis of the company’s weighting in an index.
That wasn’t a bad idea but after a while it raised a question. If that is what they were doing why pay for it.
Many funds were what became known as closet index trackers. The problem was the incredibly high fees which could reach as high as four or five per cent, thereby absorbing much of the likely gains and giving rise to famous books such as ‘Where are the customers’ yachts’, which observed that the system made stock brokers rich and to an extent funds and their managers but left their unhappy customers with investments that significantly underperformed the indices.
Out of this, as people increasingly grasped what a rip-off the whole system was, were born ETFs. These are exchange traded funds which explicitly track indices, don’t need managers and can operate profitably with very low charges, often well below one per cent.
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ETFs are amazing investments
Subscribers will have noticed that I recommend my favourite ETFs again and again. You don’t need many or even more than one because they have built in diversification. It is more about the level of risk you want to take on, QQQ v QQQ3. As a gung-ho, foot to the floor type of investor, I like the latter, more cautious investors plump for the former; that’s fine, horses for courses.
What is an interesting conundrum is, if deep dive share analysis is a waste of time, how do you decide which shares to buy and sell.
The magic of 3G+
I have grown old, very, very old, as my not much younger cousin would say, in pursuit of the perfect share. I started with the idea that only growth shares were worth bothering with since if the company isn’t growing why should it become more valuable.
This immediately eliminates huge chunks of the stock market. The next thing I look at is the chart. I don’t know much about any particular company but many people do, people who work there, their professional advisers, fund managers who have just sat down with the CEO and so on. If the company is a real growth star this will be reflected in the share price performance because insiders will be keener to buy than sell or vice versa.
Next I look at the story. Stories are important because for a share to climb a lot it needs to capture the imagination. Many exciting shares are driven by news, especially shares not anchored to any cast iron set of fundamentals.
It is not a share but a perfect example of this is bitcoin which either has no fundamentals beyond the all-important scarcity or if it does have them they are so mysterious, like the hash factor, that only a handful of people understand them. Tesla has been a bit like that with Elon Musk an expert at getting us excited by talking about cyber trucks, giant lorries, planned new models that may only cost $25,000, autonomous driving, robots, car insurance, competitively priced using Tesla’s vast and growing data banks, and so on.
Tesla walks the talk. What an amazing company but Mr Musk keeps stirring the pot as well with able support from super fans like Cathy Woods, manager of the ARK funds, which have bet so heavily on Tesla.
America is awash with 3G shares
It is amazing how amazing the American stock market is; other stockmarkets are graveyards by comparison, which is why it is increasingly rare for me to invest in non-US shares where investment has to be subsidised by tax handouts like ISAs. Why bother when Wall Street is such a class act. There are literally hundreds of 3G shares listed on Wall Street, many but not all on Nasdaq.
The real problem is how to make the best of all these wonderful 3G shares. For years I thought the answer was, if growth is good, faster growth is better and I still lean in that direction. It can be very profitable to invest in explosively growing businesses but they have a problem which was vividly demonstrated in 2022. Too many other people start to do the same thing and these super stocks end up becoming insanely overpriced.
It was like in 2007 when everybody suddenly decided that it was a good idea to borrow to buy property and property and debt markets became dangerously overstretched.
So, you might say, let’s wait until they are overpriced and sell them but unfortunately that doesn’t work. This is partly because these growth spurts can be seismic, 10 or 20-fold increases in sales. Secondly great growth shares can stay over-priced, or appear over-priced, for a very long time, racking up incredible gains in the process. Indeed it is almost a mark of a really great growth share that it looks wildly overpriced.
There is a simple reason for this. If a share was great, looked great but was cheap that would be too good to be true. You have to scare the buyers off some how and shares in really amazing companies do this by looking insanely expensive. One day that is exactly what they will be but telling when; good luck with that one.
I would say all my most successful purchases have been of shares with PE ratios in the hundreds.
Just look at Microsoft between 1986 and 1999/2000. The price went from nine cents, adjusted for subsequent share splits, to $60. It rose 666 times and for most of that time was one of the most expensive shares on the US stock market. It defied gravity, year after year after year. The analysts were baffled as it smashed all their rules about valuation, profit margins returning to the norm, the effect of competition and on and on.
Microsoft was a classic buy and pray stock but there were some clues. The growth was incredible, the story was amazing, there was a huge ‘something new’ driving the shares, the importance of the software in which they had a de facto monopoly to the desktop computing revolution and the chart was incredible. You just had to believe but that was not easy to do, just as knowing when to sell is not easy.
Looking for the next Microsoft
In a nutshell that is what I am trying to do. Maybe Microsoft is the next Microsoft and is going to become a truly ginormous company as it masters AI but there will be others. Part of the trick is to look for them and not be hemmed in by a lot of nonsense about value. There is something wildly romantic about a world-beating share and you need to be a bit of a dreamer to find them. This is why they never emerge out of analysis by which shares are almost always a little bit cheap or a little bit dear.
The analysts completely missed success stories like Tesla and Nvidia.
You may decide it is impossible to find these wonder stocks and instead use a scatter gun approach and make sure you invest in all the candidates. That is not a bad idea. This would give you an amazing portfolio and you could then do what I do which is build up your stake in the best performers so if there is a Microsoft in there you will do very well.
If you are doing this make sure not to carry any passengers. If a share is only in your portfolio because it looks cheap or has fallen too far to sell, sell it immediately and reinvest in a super star candidate. I get positively angry with shares that are losing me money and often sell unnecessarily but I prefer to do that to stay focused on potential super stars. The best of the best often hit the ball out of the park all of the time.
Funnily enough they are usually fairly obvious. It was obvious early on that Lewis Hamilton was a fantastic Formula One driver and MBappe was an incredible footballer. Shares in great companies are similar. If you have to keep asking yourself if it is special it isn’t. There is an eery parallel to the sensation of being in love.
Salesforce.com and ‘something new’
Salesforce (NYSE: CRM), the global leader in CRM, today launched Einstein GPT, the world’s first generative AI CRM technology, which delivers AI-created content across every sales, service, marketing, commerce, and IT interaction, at hyperscale. With Einstein GPT, Salesforce will transform every customer experience with generative AI.
Einstein GPT will infuse Salesforce’s proprietary AI models with generative AI technology from an ecosystem of partners and real-time data from the Salesforce Data Cloud, which ingests, harmonizes, and unifies all of a company’s customer data. With Einstein GPT, customers can then connect that data to OpenAI’s advanced AI models out of the box, or choose their own external model and use natural-language prompts directly within their Salesforce CRM to generate content that continuously adapts to changing customer information and needs in real time.
For example, Einstein GPT can generate personalized emails for salespeople to send to customers, generate specific responses for customer service professionals to more quickly answer customer questions, generate targeted content for marketers to increase campaign response rates, and auto-generate code for developers.
Salesforce.com, 7 March 2023
As usual co-founder and CEO, Marc Benioff, is not the man to downplay the significance of this launch.
“The world is experiencing one of the most profound technological shifts with the rise of real-time technologies and generative AI. This comes at a pivotal moment as every company is focused on connecting with their customers in more intelligent, automated, and personalized ways,” said Marc Benioff, CEO of Salesforce. “Einstein GPT, in combination with our Data Cloud and integrated in all of our clouds as well as Tableau, MuleSoft, and Slack, is another way we are opening the door to the AI future for all our customers, and we’ll be integrating with OpenAI at launch.”
Salesforce.com, 7 March 2023
The chart looks promising.
This whole AI thing is going to be very exciting and is going to drive share prices.
Einstein GPT is the next generation of Einstein, Salesforce’s AI technology that currently delivers more than 200 billion AI-powered predictions per day across the Customer 360. And by combining proprietary Einstein AI models with ChatGPT or other leading large language models, customers can use natural-language prompts on CRM data to trigger powerful, time-saving automations, and create personalized, AI-generated content. Launching today are:
Salesforce.com, 7 March 2023
- Einstein GPT for Sales: Auto-generate sales tasks like composing emails, scheduling meetings, and preparing for the next interaction.
- Einstein GPT for Service: Generate knowledge articles from past case notes. Auto-generate personalized agent chat replies to increase customer satisfaction through personalized and expedited service interactions.
- Einstein GPT for Marketing: Dynamically generate personalized content to engage customers and prospects across email, mobile, web, and advertising.
- Einstein GPT for Slack Customer 360 apps: Deliver AI-powered customer insights in Slack like smart summaries of sales opportunities and surface end users actions like updating knowledge articles.
- Einstein GPT for Developers: Improve developer productivity with Salesforce Research’s proprietary large language model by using an AI chat assistant to generate code and ask questions for languages like Apex.
Especially when you reflect that this is just the beginning. Investors are getting the message. On the day that Salesforce.com announced its new AI, strictly speaking AGI, product, the shares jumped 15.5pc. That is what I thought but I was wrong. The share price jump occurred after Salesforce.com announced its Q4, 2023 results (to 31 January) which smashed expectations.
“For the full year we delivered $31.4bn in revenue, up 18pc year-over-year, or 22pc in constant currency, one of the best performances of any enterprise software company our size,” said Marc Benioff, Chair and CEO of Salesforce. “We closed FY23 with operating cash flow reaching $7.1bn, up 19pc year-over-year, the highest cash flow in our company’s history, and one of the highest cash flows of any enterprise software company our size.”
Q4 2023, 1 March 2023
I like Benioff, he is such a gung-ho guy.
Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing.
Q4 2023, 1 March 2023
A modest plan!
Benioff recently became sole CEO and there is a noticeable new energy about the business.
Now we immediately put into place an accelerated transformation plan in four areas: short-term and long-term restructuring of the company; improving profitability and productivity; prioritizing our core innovations; and a deeper and even stronger relationship with our shareholders, you. In fact, that’s where we started. The very first thing we did when I became sole CEO three months ago was Amy and I promoted Mike Spencer, our head of IR, to our leadership team. So we’re all in much more communication with all of you.
We’re now moving aggressively across all four fronts of our transformation. First, we’re reigniting our performance culture and doubling down on our accountable management of our sales organization, as you’re about to hear from Brian. As you know, beginning in January, we also initiated a headcount reduction, and we’re significantly consolidating our real estate footprint. Second, we’re more closely scrutinizing every dollar of investment and resource and very focused on driving operational excellence and automation across the business.
Third, our amazing engineering team is focused on integrating our acquisitions and prioritizing our core innovations that are driving customer success. And finally, as we said in motion, longer-term structural improvements, we’re working with Bain on a comprehensive operating and go-to-market review. To ensure a high degree of accountability, our board is forming a new business transformation committee, which I have joined, and we have fully expanded our M&A committee as well to reflect our new focus. We also dramatically stepped up our communication feedback loop with our investment community, and I hope you all are feeling that.
Q4 2023, 1 March 2023
As usual AI is at the heart of what is happening.
And we know every digital transformation begins and ends with the customer. We have an incredible vision for the future of CRM, a fully integrated suite built on our new Genie data cloud and our next-generation platform powered by real-time hyperscale data, AI, and automation. Our new data cloud is the most exciting innovation that we’ve developed since the original Salesforce clouds and our metadata platform, which we viewed as our first horizon and our second horizon for our technology. Clear, our third horizon is our data cloud.
In this new AI world that we are all now entering, nothing is more important for our customers than our new data cloud, which is rapidly becoming the intelligent heart of their customer engagement. Data cloud becomes our most important cloud, augmenting every Salesforce cloud and making every part of our Customer 360 more automated, more intelligent, and more real time. We just launched Tableau plus data cloud natively integrating Tableau with data cloud. So every customer can easily visualize, automate, explore, and act on their data in real time.
Q4 2023, 1 March 2023
It’s exciting. As Benioff says.
This is only the beginning of what’s possible.
Q4 2023, 1 March 2023
Share recommendations
Microsoft. MSFT. Buy @ $284
Salesforce.com. CRM Buy @ $197.50
