Hitting the right note on price
Ilove technology. Truly. The latest example of human progress that I’m obsessed with is the digital piano that I treated myself to after a year of exceptionally hard work in 2021.
A gorgeous Yamaha Clavinova now sits in the corner of my living room, offering a rare opportunity to learn an entirely new skill as an adult.
That’s right — I’ve never played before. Gone are the days of sheet music and easy versions of Beethoven melodies for beginners. Hello, YouTube and incredible musicians who take the time to make videos showing plebs like me how to play music from the likes of Linkin Park on piano. It makes the entire prospect of learning the instrument so much more exciting.
The digital piano is better than a traditional upright piano in every single way. At this price point, the digital pianos sound amazing and the keys are weighted like a traditional piano’s, so you can build the finger strength that is required. Unlike on a keyboard, for example, the way you play each key makes a difference. This is achieved without the need to ever have the piano tuned. It’s smaller too, which is great for modern living. Perhaps most importantly, it can be played with headphones. This saves my neighbours and family from my 50th attempt to play Clocks from start to finish.
Here’s the real kicker: the new price for this high-end digital piano is around half the price of a new upright piano. Don’t even ask what the cost of a new baby grand is. I asked the people working in the store how often they sell an upright piano these days. The answer? Almost never.
In this example, the power of disruption is absolute. This is the donkey cart transforming into the automobile. There is simply no good reason at all to buy a new upright piano vs a high-end digital piano. Consumers have spoken with their wallets.
Naturally, it took a long time to get to
that stage. The first digital pianos were launched in the 1980s and a Google search tells me they were awful. Even a decade ago, the technology wasn’t on par with the upright pianos that it sought to disrupt. But here we are, living in a world where music stores probably shouldn’t bother having upright pianos on the floor.
The relevance of this reference to your investment portfolio is that we all need to be careful of getting carried away by new technologies. They usually take a lot longer than people realise to become good enough to really be profitable. In addition, many of them offer only partial disruption rather than full replacement of another product.
For examples, Kindles are great and all, yet many people prefer the experience of a paperback and a comfy chair. The CD killed off the floppy disk because it was better in every way. The same cannot be said for screens vs paper, at least not at this stage. This may change for future generations who are growing up with iPads from a young age.
At the height of the pandemic, investors were buying Zoom shares as though people would never engage in person again. After being traded up to around $560 a share, Zoom has been smashed down to $173 at the time of writing. That’s a revolting outcome for those who bought at the top. Even those who waited for a base to form around $330 a share have lost nearly half their capital.
This isn’t necessarily the fault of Zoom. It is the fault of a new generation of investors who mistakenly assumed that the pandemic would change human interaction forever. Not so fast, Cathie Wood fans.
Wood has gone on record as saying that her funds are now in “deep value” territory, a ridiculous assertion that is a desperate attempt to latch on to 2022’s buzzword: value. The rotation from growth to value is under way, which is something I warned about last year.
Yields are on the rise and so is inflation. This isn’t good news for companies that promise to make fantastic returns in 10 to 15 years from now. It is good news for companies that were trading on a 3 times multiple, with excess production capacity and enough pricing power to take advantage of an inflationary environment.
Wood’s $ARKK is down more than 45% from the February 2021 peaks. It may well become Deeper Value, as I’m not sure the murder on the growth stock dance floor is over.
There are still many counters trading at 10 times revenue multiples in that end of the market.
When assessing growth stocks, ask yourself if you’re buying Zoom or a digital piano. Either one is fine at the right price. Welcome to 2022 — it probably won’t be anything like 2021.
Yields are on the rise and so is inflation. This isn’t good news for companies that promise to make fantastic returns in 10 to 15 years from now