It is easy to be too clever in the stock market. I always try to do the obvious partly on the grounds that if the phenomenon you are looking for is not obvious it is probably not happening. I like charts which are obviously strong and/ or have obvious chart breakouts. I like fundamentals that are obviously good like fast growth, great management and an exciting story. Last but not least I love shares in companies where something new and important is happening.
This is very much about the obvious although I do admit that like so many things hindsight makes stuff more obvious than it was at the time. It is obvious to us now that the First World War was a terrible thing and many young men lost their lives. When the war began they had no idea it was going to be so dreadful and expected it to be over in weeks, rather like what many people thought would happen when Covid first arrived.
I did actually make the comparison between Covid and the First World War early in the outbreak and my goodness was I right. So if you can find something important happening and draw the obvious conclusions you may do very well with your investments.
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The search for something new
One implication of the above is that we should focus much of our research efforts on trying to find something new. The big one presently is AI. This is so big, especially the generative version about which everybody is becoming so excited, that it is hard to know what the effects will be. For the moment I am trying to pick some obvious candidates to benefit like Nvidia, Microsoft and Meta Platforms, all businesses with the resources and the ambition to drive AI forward on its exciting, scary journey into whatever sc-fi future lies ahead for humanity.
AI is one where we need to be constantly on the watch for opportunities. There will be many, I am sure.
Less epic examples of something new are E.L.F. Beauty with its efforts to disrupt the beauty market. I wondered into a large Boots the other day and I could find no products from ELF. It occurred to me that this was because of the incredibly aggressive pricing which would have been devastating for all the high priced and, no doubt, highly profitable, products sold by Boots.
This is all very understandable for Boots. They don’t want to upset the applecart but can they defy the future. I doubt it. If there is a much cheaper way of buying products, which only mystics and highly paid scientists offering impenetrable chemical formulae, think are any better it seems to me that cheap and cheerful, innovative and brilliantly marketed, is going to win in the end.
Novo targets obesity
Another example of something new is Novo Nordisk with its obesity drug. We are continually told that the world is full of obese people who are bankrupting health care systems everywhere as well as having a negative effect on their own lives. If Novo Nordisk, with its strong background in diabetes treatments, has a solution they should do very well. As usual I am reassured in my hope that Novo Nordisk is going to be a continuing great success by a spectacularly strong chart and excellent fundamentals.
From an investors’ point of view the ideal something new is one where many people don’t think it is going to work. There are doubters with every ‘something new’ but some experience more doubt than others. When Netflix cannibalised its profitable DVD business by launching a streaming business which ate money and forced the group into losses there were many doubters all of whom were proved resoundingly wrong.
Tesla, in the early days of its electric cars, was one of the most shorted stocks in history and came through that period in resounding style putting the shorts to flight with their tails between their legs, admittedly having flirted with bankruptcy on the way but companies can be surprisingly tenacious when it comes to avoiding bankruptcy.
It seems strange to think now that when Apple launched the iPhone many people were not at all sure it would be a success and over the years some of the price points raised eyebrows. But, as Warren Buffett keeps saying, given the usage that most people get from their iPhones, it is obvious that cars, TVs, wives, husbands, children, almost anything that isn’t nailed down, would be sacrificed before most people could imagine going through life without a phone and a phone which is part of the growing Apple ecosystem has especial appeal.
This is even more true as Apple adds more services, which is a clever strategy because it makes ownership of an Apple iPhone even stickier and adds new revenue streams. My impression is that Apple is investing heavily in promoting the services side of the business and this is an important ‘something new’.
I had a look at some figures. In the latest year to 30 September 2022 Apple had sales of services of $78.1bn. They first started reporting sales of services as a separate segment in 2019 but backdated the number for three years so we can see that in 2017, so five years earlier, Apple had sales of services of $32.7bn. This business is growing strongly.
Apple research & development spending explodes
The growth continues. In Q1 2023, ending 31 December 2022, annualised sales of services were running at close to $84bn. Another striking area of growth at Apple is in r&d spend. In 2013 this was $4.47bn. In the latest quarter it was $7.5bn, which annualised is $30bn. This makes Apple an innovation machine which is cranking up all the time and obviously Apple is going to become closely involved in AI, which is a natural area of development for them given that their phones are already known as smart phones.
My general impression is that the big guns of tech, sometimes known as the mega caps, are still firing on alll cylinders, which, as we know, does not apply to most countries. If, for some bizarre reason, Belgium, say, declared all-out war on Apple, I think many people would expect Apple to win.
The biggest threat to the mega caps is that they are becoming so mega that the politicians are running scared but they may already be indestructible. When the politicians took fright at Rockefeller and his monopoly of refining capacity in the early 20th century they used anti trust legislation to break Standard Oil into five separate oil majors each of which went on to become more valuable than the original Standard Oil.
Poor old Rockerfeller (I use the adjective ironically), who lived to be 97 years old, was making money so fast he didn’t know what to do with it; a first world problem with a vengeance.
FNGU looks exciting if you can buy it
The MicroSectors FANG+ Index 3X Leveraged exchange-traded note aims to triple the daily return of an index of so-called FANG stocks, meaning Facebook, Amazon, Apple, Netflix, and Google-parent Alphabet Inc. The fund offers highly concentrated exposure to those five “core” companies, plus another five technology growth stocks, including Alibaba, Baidu, NVIDIA, Tesla and Twitter.
Twitter has been privatised but you get the general idea. FNGU is three times the mega caps plus the compounding effect discussed in the recent alert on QQQ3. I cannot buy these shares on IG so I don’t usually bother with them but if you can they are on fire and have given a strong buy signal. If we are to have a full bull marker leg led by the mega caps this ETF is going to do well, but of course will always be a bumpy ride.
Is QQQ3 off and running?
I rather think it is having broken decisively through $90.
Nvidia is an ‘obvious’ classic
I have just been listening to an address by Nvidia co-founder and CEO, Jensen Huang, who is one of my stock market heroes. If anyone on this planet is single handedly taking the technology revolution forward it is Jensen Huang. So, if AI is going to turn evil and rule us all it will be his fault. Fortunately, he seems very sure that is not going to happen.
He says that the whole company has been reinvented to drive forward accelerated computing and AI. An AI focused ETF called CHAT has just been launched and their biggest holding is Nvidia, with Microsoft second on their list.
As well as the greatest story on the planet Nvidia has all the makings of an explosive chart. Way back in pre-history when I was working for a stock broker in Perth, W. Australia. I came across a lady chartist who talked about a pattern called a bull hook. The shares rise strongly, have a fierce sell-off then, without building any sort of pattern they just turn around and carry on climbing. Nvidia, Microsoft and others look to be doing the same thing. It is a strong pattern.
If you want to follow the thoughts of Jensen Huang just google his name. Otherwise we are going to get an update when Nvidia reports its Q1 2024 results on 24 May. His enthusiasm is something to behold.
Strategy – US markets always hit new peaks after sell-offs
I read a great piece earlier today making a simple point. After every bear market the US Stockmarket (reflecting what happens in a country which believe in capitalism) ALWAYS goes on to make a new high. The Nasdaq 100 is still 18pc below its 2021 peak and making a bull hook pattern. If it reaches a new peak, let alone if the next bull leg takes it much higher, imagine what is going to happen to FNGU and QQQ3. They are going to go ballistic.
E.L.F. Beauty. ELF. Buy @ $ 90.50
Novo Nordisk B. NOVO_B. Buy @ DKK1150
Apple AAPL. Buy @ $174.50
Nvidia. NVDA. Buy @ $316.50
Microsoft. MSFT. Buy @ $317.50
Meta Platforms. META. Buy @ $243
Microsectors FANG index 3x leveraged EFT. Buy @ $131
Wisdomtree Nasdaq 3x Daily Leveraged. QQQ3. Buy @ $94