Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
What 5G means for business…
Jeff, I know you’re focused on 5G. I want my company to start focusing more on what 5G means for marketing and communication, since everything in business and personal life revolves around the smartphone.
Everything is about to change, and I need cutting-edge information. Not necessarily about which stock to purchase but about what the technology means for marketing and communication and how businesses need to understand this now rather than later.
– Steve S.
Thanks for writing in, Steve. These are the types of questions I love to see. If you’re reading this, then you know our mission at The Bleeding Edge is to keep readers current on technologies that are reshaping our world. Understanding these trends is essential to informing good investment and even business decisions.
It’s hard to make any specific comments without knowing more about your business. But I’ll share with you some general thoughts on the changes that we’ll be seeing.
You are absolutely right that reaching people on their smartphones is an essential part of today’s business world. There are an estimated 2.7 billion smartphone users in the world. And smartphone users go through about 150 mobile-device-related actions each day.
Most smartphone users are now spending more time a day with their phones than they are with personal computers. So it’s no surprise that many companies are building their businesses “mobile first.” That means they prioritize business around reaching customers through their mobile phones. We discussed how this trend has played out in mobile banking with the rise of companies like Green Dot and Chime.
One of the major trends in advertising and marketing is better leveraging location data. Specifically, knowing exactly where consumers are at a given moment and engaging those consumers with location-specific, contextually relevant, and hopefully useful information.
Let’s use an example. A consumer pulls off the highway to get gas. As the consumer is filling up their tank, the consumer receives an alert on their smartphone. The alert is a special offer for a coffee and a donut sold by the convenience store at the gas station. Any proximity to potential retail commerce that is relevant to the consumer presents an opportunity for engagement. 5G technology enables these precise locations.
And the experience will become even more seamless when 5G wireless technology is combined with augmented reality (AR) glasses. We can imagine walking into a Starbucks and seeing the entire menu and specials right in the lenses of our AR glasses. Communications also become seamless. Consumers will not have to hunch over their smartphones any longer, as important messages and communication will be displayed in the eyewear and accessible via voice commands.
Bleeding-edge data technology firms like Near (near.co) are using artificial intelligence to combine device location data and consumer behavior data so that marketers can send the most relevant advertisements and communications to consumers at precisely the right times.
It will soon be critical for companies to leverage these kinds of tools, or they’ll risk obsolescence.
It’s never been easier to start a business…
So I am a bit confused. [Your research] says to invest. But I see other things from Bonner & Partners saying a crash is coming. So is it safe to invest in these 5G companies when the market is at an all-time high? Or do we wait for a correction to get a position? It’s confusing and feels like going out on a limb at these high levels of indexes.
– Travis W.
Thanks for writing in, Travis. Bonner & Partners, as well as our parent company Legacy Research, publishes several different research publications. We pride ourselves on completely independent, objective, and conflict-free investment research. The diversity of expertise amongst the experts on our team is a great strength.
And it’s natural that we disagree on occasion on certain topics. Oftentimes, the difference in views can be just a matter of timing.
But let me tell you what I see in today’s market…
The U.S economy is extraordinary right now. Even with the Federal Reserve having raised interest rates, and the protracted trade negotiations and tariffs, the U.S. economy has the lowest unemployment and the highest labor force participation rates.
I do agree that there are certain areas in the stock market that are overvalued. But I don’t see that across all asset classes. There are still great investment opportunities at great valuations.
And the amount of investment into technology companies in particular is at an all-time high. Let’s have a look at the chart below:
U.S. venture capital investment last year was at record levels, and 2019 is shaping up to be at or above last year’s investment levels. This means that there are enough great investment opportunities in early stage technology companies to justify the record levels of investment.
And at the same time, 2019 is shaping up to be far and away the best year in two decades for IPOs. Companies like Uber, Lyft, Pinterest, and Slack have gone public. A healthy IPO market returns capital back to large investors, who in turn take much of those profits and reinvest in new technology companies. This activity is driving the most incredible technological innovation that I’ve ever seen.
And that’s great for the economy. I’d be very worried if the smart money were taking their capital and parking it on the sidelines. But that just isn’t happening.
Artificial intelligence and process automation are stimulating economic growth, creating new jobs, and simplifying tasks that were previously inefficient.
If you ask me, this is a great environment for future business growth. And it has me very bullish on the future of the economy and U.S. stocks.
The IPO “Magic Window”…
Next up, a great question about IPO investing…
Hi Jeff – you’ve said that there is a right way and a wrong way to invest in IPOs. What is the right way, and what is the wrong way?
– Martha W.
Thanks for the question, Martha.
Yes. You’re absolutely correct that there is a right way, and a wrong way, to invest in an IPO. Let’s talk about the right way first. There are really three great opportunities to invest in an IPO.
First opportunity: Investors can buy pre-IPO shares from their brokers. Leading up to an IPO, some brokers will get an allocation of pre-IPO shares. And the brokers can offer these shares to clients.
But even if your broker gets an allocation of the IPO, you might not be able to get an allocation of shares. It depends on how many total shares the underwriters allocate to your broker… which then allocates those shares, often favoring its biggest customers. For this reason, buying pre-IPO shares is usually difficult for everyday investors. The majority of pre-IPO shares go to institutions and high-net-worth individuals.
Second opportunity: Investors can buy shares on the day of the IPO. But for most IPOs, this tends not to be the best time to invest – unless your intention is to trade quickly in and out of a stock.
For example, when a hot technology IPO prices at $20, when it actually starts trading, the stock opens at $30. The reason is that large institutions or hedge funds are able to place orders faster than retail investors, and the stock has already run up.
There is a lot of speculative money in popular IPOs in the first three months after the IPO, and that tends to be a volatile time.
Third opportunity: Readers of my investing service Exponential Tech Investor will be familiar with the third opportunity. This is our “magic window.”
When a stock IPOs, the company insiders – employees and early investors of the company – are bound by a “lock-up” period.
Employees and early investors are not allowed to sell any shares of their stock during that time. This period typically lasts 180 days after the IPO date.
The market knows that once the lock-up expiration happens, many early investors and employees will sell a significant number of shares. It is the first opportunity after typically five to 10 years of being invested that they have to take some money off the table.
As a result, the market tends to sell off a stock in the weeks that lead up to the lock-up expiration.
This creates a fantastic opportunity for smart investors to get shares of companies, often at temporarily low valuations. In fact, it is not unusual to see a stock drop below the level of the original IPO pricing… which means retail investors can buy in at a price that is better than what the investment banks paid at the IPO.
Just knowing the above information will put investors well ahead of the game. But it doesn’t mean to invest in the same way for every IPO.
In investing, context is everything. Understanding the fundamental technology of a company, the value that it provides to the industry that it is serving, whether or not customers will buy the product or service, its growth potential, and of course its valuation is essential to making good investment decisions. The wrong way to invest in an IPO would be to buy a stock without a firm understanding of these critical factors.
Fortunately, I take care of all that for my readers. That’s my entire mission: deliver market-crushing returns from the best tech companies on the market.
And next Wednesday, July 24 at 8 p.m., I’m revealing one of my newest projects that will let readers invest in early stage technology companies before they become multibillion-dollar giants. If you’d like to hear all the details for yourself, then be sure you save a spot right here.
That’s all we have time for this week.
If you have a question for me to tackle next week, be sure you write to me by clicking here.
Editor, The Bleeding Edge