This Saturday the public is invited to attend a free day of investment education at the 65th annual BetterInvesting National Convention at the Westfields Marriott Washington Dulles in Chantilly, Va. As part of the day’s agenda, Chris Versace, chief investment officer at Tematica Research and author of the new book “Cocktail Investing,” along with Insight Wealth Management founder Bob Pugh and BetterInvesting CEO Kamie Zaracki, will discuss whether the bull market will continue and what long-term investors should look for in this market. To whet your appetite for this Saturday’s panel, Chris and book co-author Lenore Elle Hawkins of Meritas Advisors answered our questions about their approach to investing. Register for the free day of BINC at www.2016-bi-publicday.eventbrite.com.
1. First, the obligatory Larry King question: Why the title “Cocktail Investing”?
Just like a great cocktail or a fine wine, successful investing requires knowing just what matters most, letting things ferment just enough to let the most impactful influences rise to the top and then distilling everything down to what you most want. If you’ve ever had a cocktail that you’ve loved but at one point didn’t sit right — there was a little too much of one or too little of another ingredient, for example — you knew upon tasting it something wasn’t right or someone didn’t get it right.
In the Cocktail Investing world, we look at the intersection of forces such as evolving economic, demographic, psychographic and technology landscapes that form demonstrative thematic tailwinds. Of course, companies on the wrong side of these face challenging headwinds that could force them to change their business model or fight for their existence.
An example that encapsulates this is Amazon (AMZN), which is benefiting handsomely for the adoption of digital commerce and the cloud, while brick and mortar retailers from Barnes & Noble (BKS) to Macy’s (M) and Target (TGT) are seeing sales getting hit hard and in some cases shutting locations to reduce their cost structure. Others are considering shaking up their business model. Case in point: Bloomberg recently reported that in responding to a question over how it expects to reach shoppers, the CEO of Gap (GPS) said, “To not be considering Amazon and others would be — in my view — delusional.” If you’re on the wrong side of the tailwind, it’s simply adapt or die.
2. You discuss studying pain points and companies working to solve them. What are some of the longest-term pain points?
There are a wide number of paint points, including the long-term impact of water scarcity amid a growing global population with rising disposable incomes. Also, with roughly 30% of Americans with no retirement savings, and worse yet, 47% of Americans who can’t scrape together enough for a $400 emergency fund, we’ve got a looming retirement crisis to contend with in the coming years.
We also see several looming paint points as part of our Connected Society investing theme, with the latest being what we call “the death of the mall.” As we discussed, retailers are contending with the accelerated consumer shift to online and mobile shopping, and closing locations. That fallout poses a pain point for those REITs, such as Simon Property Group (SPG), that invest in malls. These companies will need to alter their customer mix to match the shifting preferences of consumers that favor the “experience economy.”
Another one is a downside to our Connected Society investing theme, which is one of the tailwinds behind our Safety & Security investing theme. As we increasingly transact and interact in the digital world, be it online or mobile, our financial information, personal data, other information is being stored with various companies and agencies in the cloud and in a variety of apps. We’ve already seen an explosion in cyberattacks, hacks and identity theft at the corporate, personal and government level across the globe. We see cybersecurity as the new must-own insurance — you may not need it, but if something happens you’ll be glad you have it.
3. How can an investor distinguish between a truly disruptive technology and a simply incremental one?
This is a great question, especially since we have seen many people think they are investing in a disruptive technology when it’s really not. A disruptive technology completely changes the way a product or service is delivered to the customer and creates an entirely new set of benefits that before were not something anyone even knew they wanted, and in many cases eventually can’t imagine living without.
For example, Apple’s iTunes and other online music technologies were massively disruptive to the music industry. Consumers could now purchase a song instantly and could purchase just that one song instead of an entire album and, even better, that purchased music is available to them everywhere, always, versus a CD that you needed to actually have with you to enjoy.
Another one that is apparent to many is the Internet. Not only has it disrupted the way we read, gather information, learn, bank, socialize, shop, consume content, bank, invest or make plans to eat and travel, but it has rocked a vast range of businesses to their core. And as we talked about earlier, we’re still feeling the ripples as we enter what could be called Creative Destruction 3.0.
By comparison, an incremental technology is the Wi-Fi that many of us use to access the Internet. Yes, it’s better than dial-up ever was and faster than most cellular connections available today, but it’s not a disruptor like the Internet. It just makes something that we already use and like better.
One other way to think about this is found in something Steve Jobs reportedly contemplated when evaluating new initiatives: “Is it a product or a feature?”
From our perspective, it is incredibly important to recognize the difference between the two and assess which bucket a company fits into: product or feature. We see Yelp, Angie’s List, Groupon and others as features that over time will be incorporated into other products — like Facebook’s Professional Services or others from Alphabet’s (GOOGL) Google, much the way point-and-shoot cameras were overtaken by camera-enabled smartphones and personal information management functions were first incorporated into mobile phones and later smartphones, obviating the need for the original Palm Pilot and other pocket organizers. To us, while GoPro (GPRO) and Fitbit (FIT) are “products” today, longer-term we see them as features housed inside other products. As such, it’s hard to get excited about them as investments.
During the free public day attendees can see a live portfolio review, discussion of stock ideas, corporate presentations and Bob’s keynote speech. There’s also a Corporate Expo, with opportunities to meet company representatives. To register for the free public day, go to www.2016-bi-publicday.eventbrite.com.
Companies are mentioned only for educational purposes. No investment recommendations are intended.