Follow the dreamers
Blue chips are dead, toppled by a new generation of tech-based upstarts
Stop for a moment. Think, watch, then think again. The world is changing; faster than you might imagine.
In our often hectic times, we don’t take the time to appreciate the change and how it is interwoven into our everyday lives. Think how easily people in cities will grab an Uber, order groceries or a takeaway meal, and organise travel online. Our banking now is almost done exclusively on a smartphone that has only been in existence for a little over a decade.
It doesn’t stop there. Soon a significant proportion of our energy will be generated by wind and solar; small surgery might be done remotely via new telephone technology and robotics; driverless vehicles are closer to becoming a reality; and people who suffer certain medical conditions can now use cannabis legally.
And this is barely scratching the surface. The real change that I see is coming from people themselves. A new generation is prepared to chase their dreams using technology in ways perhaps never experienced before. The renaissance of ideas, caused by the quantum leaps in technology (and the affordability of that technology), means more innovation and wave after wave of new investment opportunity.
A common situation I have experienced in recent times is where a couple (both working) might use the steady income of one partner to maintain a household, while the other partner sets up a business with the ambition of creating true wealth for the family. In other words, for people in their 20s and 30s, innovation is alive and well. Do not despair about the younger generations; they are not only doing well but helping to change the world.
Now to investment. We all understand the struggle of large organisations: retailers, banks, life insurers, even telecommunications companies. Once the cornerstones of solid, diversified portfolios, it’s easy today to look at these investments as dead weights. Their profits and dividends are under pressure.
They are being stung by the arrows of a thousand small companies, all using technology and smaller capital requirements to create competition and to eat away at the profits and dominance enjoyed for decades by so-called blue chips. Here’s a hint: there are no blue chips any more. They’re dead. Gone forever. In their place there are just companies – all vulnerable to change.
Who could have imagined, 10 years ago, that our major department stores – each over 100 years old – could be so vulnerable? But it’s happened and continues to happen every day to large, established companies.
The trick, as an investor, is not to try to resist the change but to modify your habits and go with it. Seek out these new, agile, tech-based companies that are in myriad industries, led by young entrepreneurs whose dreams become reality via the capital they raise from the markets.
And it’s not hard to find these ideas. In fact, it’s simple really, though it takes some work and diligence, like any good investment opportunity.
Start at the website asx.com.au/asx/ research/recentFloats.do. It’s the ASX’s site for recent share floats, where you can find the new companies hitting the markets and how they have performed. This is your base of knowledge because there is little doubt that even if you missed a float (or were unable to get shares), the opportunity still exists.
As you’re researching the initial public offerings (IPOs), head to another couple of sites I really like – ipowatch.com.au and onmarket. com.au. Here you will gain more information about those companies that have recently hit the market and how they have performed. Onmarket does a quarterly analysis of the best-performing IPOs. Its September 2017 report showed the average IPO last year created a 25.7% share price gain since listing.
The report by Ipowatch shows, dramatically, that the best-performing float of 2017 was medicinal marijuana stock Cann Group with a 1016% gain, followed by vitamins and supplements company Wattle Health with a 775% gain and cobalt producer Ardea Resources, up 765%.
Now the warnings are obvious: not every float works. Workflow mapping business ServTech Global is down 90% (from 20¢ to 2¢) as it needed to raise more capital after its float. But the research shows that of the 106 new companies listed on the ASX in 2017, 57 were higher, 44 were lower and five were steady.
The truth is that the IPO market has always attracted opportunists and, frankly, some crooks, spivs or incompetents. In some cases, things will go wrong. But remember, this is the base for your information. Among those companies is a rich tapestry of business opportunity and, perhaps, something to spice up your portfolio. It might even make you feel younger … part of the new generation.