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The equity markets, and particularly the stocks of growth companies, have been caught up in a major sell-off that started in November and which accelerated into the close of the year. It has continued in the early weeks of January as well. A recent article published in Bloomberg News notes that fully 40% of stocks on the NASDAQ composite are down 50% or more since their all-time highs -- a situation reminiscent of the dot-com crash in 2000. (https://www.bloomberg.com/news/articles/2022-01-06/number-of-nasdaq-stocks-down-50-or-more-is-almost-at-a-record)
The sell-off appears to be related to Fed rate-hike fears and interest-rate inflation noise. The Bloomberg article, for instance, declares: "Traders were quick to unload tech shares, whose high valuations become harder to justify in a rising-rate environment." We find that argument to be short-sighted, and to have little to do with the actual investment merits of innovative businesses that are creating real value in their industries. Therefore, we believe at times like this, when so much of Wall Street and the financial media are reacting in short-sighted ways, it is valuable to share some of our longer-term views on the investment narratives which we see as important drivers of future growth that will play out over the next several years.
One very important development which is sure to bring about many changes is the proliferation of digital currencies utilizing the blockchain, which are poised to disrupt many existing financial structures in payments, and which will enable a proliferation of new business models that will go well beyond finance. Just as the advent of smartphones and of new smartphone apps such as Uber enabled people to use their otherwise-idle cars to earn side income, the advent of blockchains and crypto currencies and tokens can enable people to “rent out” the processing power in their otherwise-idle home computers and game consoles -- and be compensated for their use!
This example is related to the development of the next iteration of internet evolution, sometimes dubbed "Internet 3.0." As this example indicates, Internet 3.0 will likely feature more decentralization, in contrast to the centralization we see today in which giant companies such as Google, Amazon, Twitter and Facebook have disproportionate power and control over monetization and distribution of data and information.
Internet 3.0 will also almost certainly be more "three-dimensional" than the current "two-dimensional" web, which today is still dominated by "flat" web-pages and social media feeds, but which in the future will probably incorporate immersive, three-dimensional virtual spaces ("virtual reality") and "augmented reality" (the addition of visual, digital images and information onto the three-dimensional "real world" with which we are already familiar).
These benefits go far beyond the kind of entertainment and gaming applications that most people think of when they hear "AR" and "VR" mentioned (augmented reality and virtual reality). For example, imagine if an engineer could simply look at the gauge on a high-pressure pipe -- even from a distance -- and immediately get a reading of the pressure and volume and flow of the fluid in that pipeline, presented in a digital visual display floating in his or her field of vision, perhaps while wearing a pair of smart glasses. We believe that industrial and business applications for such technology will be tremendous, and that their potential is only barely appreciated today.
Similarly, we also see an ongoing trend that involves the continued incorporation of the many benefits of digitization and modern technology by industries outside of the traditional "tech sector" which in many cases have yet to take advantage of all the transformative power that technology has to offer. There remain an enormous number of "analog" processes and procedures in industries from education to restaurants to construction which can become digital, with potentially transformative impacts for the companies involved.
We also predict a tremendous increase in the automation of manufacturing, with robotic machinery that will be connected via digital networks. In fact, we think that it is very likely that the much-discussed advent of 5G cellular networks will be most useful for controlling machinery and equipment in major industrial settings, even though most investors think of consumer uses when they hear the word "5G."
And, we see tremendous innovation taking place in the field of medical device technology, including the continued development of minimally-invasive procedures to replace treatments that in the past required much more invasive treatments and much longer recovery times. We are also convinced that the early advances in robot-assisted surgeries and other procedures will only accelerate, as innovative companies find new ways to apply the advantages of new developments in robotic automation to medical applications.
In short, we do not deny that the current investment climate is quite ugly. However, we believe that right now is a very good time to look forward and to realize that the best investment strategy has always involved the identification of what we call "fertile fields for future growth." We are working to include exposure to all of the above growth narratives for our investors -- and to many other themes as well. Thank you for your continued confidence in our firm, and Happy New Year!
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