Metaverse and Technology Trends w/ Beth Kindig (MI144)

Metaverse and Technology Trends w/ Beth Kindig (MI144)

Show Video

Clay Finck (01:46): Welcome to the Millennial  Investing podcast. As always, I'm your host,   Clay Finck. And on today's show, I'm joined by  Beth Kindig. Beth, pleasure having you on the   show. Beth Kindig (01:56): Thank you, Clay. My  pleasure being here. Thank you for asking. Clay   Finck (01:59): Today, we're going to be chatting  about the Metaverse and how you're investing the   space as well as your overall investment process.  Now, the Metaverse to me seems like this broad   term and buzzword that's constantly being thrown  around due to Facebook changing their name to   Meta. I'd like to open up our conversation to ask  you, what is it specifically about the Metaverse  

that arched your interest in it? Beth Kindig  (02:23): Yeah. I think that's a really good   question, because I think there are so many  big tech companies getting into this space.   One thing that I look for, no matter what emerging  trend it is, is the difference between a marketing   tactic and then real revenue. So, I'm constantly  looking for signs of real revenue growth.   Usually they're buried into other revenue segments  because this is a newer trend. One great example   is that Nvidia's professional visualization was  up I think about 150% last quarter. It was up  

40% sequentially. That's the kind of thing where  you have real revenue growth. You have a company   that clearly is meeting demand. And then I would  say, meanwhile, Facebook is saying they may lose   money on this for some time. Beth Kindig (03:09):   What I'm looking for too, that sparks my interest,   especially is the companies that already have an  audience that could become an early adopter. What   companies right now could just change over, create  some augmented reality features, put on a lens or   create a virtual space with the audience they have  now. I'm less interested in companies that want to   bulldoze, if you will, with their cash, a new  emerging trend. What I have found is that that  

rarely works out. I like the people that have been  working on something already for 10 years. And oh,   look, serendipitously we happen to be situated  perfectly for this new market. As somebody that's   been only tech-focused for a very long time,  I've seen so many new emerging trends that   has gotten Wall Street very excited the  fell flat. I've seen emerging trends that   Wall Street has entirely missed that  became the next big investment. I   guess if I'm going to throw out one that Wall  Street constantly got wrong was blockchain,   because I think you got to really think of the  Metaverse before as an emerging trend. Beth   Kindig (04:17): Electric vehicles are an emerging  trend. You have these big IPO's pre-revenue. You  

have the Metaverse, an emerging trend. We had  blockchain and crypto as an emerging trend   over the past decade. Wall Street completely  missed that. They still sometimes want to debate   the viability of Bitcoin or other blockchain  technologies. It's starting to wane a little bit,  

but you wouldn't want to miss that one, an early  Ethereum or another very infrastructure layer,   one-type altcoin. But then, you do have  other things like autonomous vehicles   where it's been promised that we would have level  five since I'm pretty sure around 2016, 2017,   I started to see a lot of news headlines around  full autonomy. I actually interviewed Intel and   Qualcomm and a couple others at CES. I think it  was in 2018. We were discussing, "Will autonomous   vehicles really be on the road anytime soon?" No.  They all said very clearly it would take years,  

but Wall Street was already bowling up and putting  a lot of money there that clearly has not panned   out. I think, and of course, we will have full  autonomy eventually, and those companies that   do that will make a lot of money and that's  great. Beth Kindig (05:30): But what I'm trying   to say is I think the Metaverse is actually  a little bit of both. I think we do have some   companies coming in and saying, "Whoa, look  at this market. I want to be a part of it."   And so, they're trying to just throw a bunch  of cash and say, "I'm in the Metaverse," or,   "I'm a Metaverse company." And then we have others  that are serendipitously centered in this trend   that, if you can find them, could greatly pay off.  What I'm most interested in with the Metaverse are  

the companies who already possess an audience,  growing that audience virtual or augmented world,   and that piece is probably the most challenging.   Clay Finck (06:04): Yeah. I really like how you're   trying to find those companies that already have  revenue and are already proven in the space. The   obvious one that comes to my mind is Facebook  as they already have the Oculus and they're   already heavily investing in the Metaverse.  One you've been very vocal about is Nvidia.   Are you seeing any projected growth numbers in  the Metaverse or how are you able to determine   how big, say, Nvidia's potential could be in this  space? Is this space investable? And how big does   a trend have to be for it to be  investable for you? Beth Kindig (06:38):    Yes, very investible. I remember I covered Unity  during its IPO. I want to say it was about a  

year and a half ago in September,  and I called it the zero to 100   market because it would basically move  so quickly and there'd be so few players.   Zero to 100 billion is what I was referencing.  When it moves, it's going to be overnight growth   for the select few. I think getting those select  few right is going to be the biggest challenge,   and because I think that a lot of people will  say they're a Metaverse company or whatnot, and   meanwhile others are truly busy serving that  market. It's not like cloud, in my opinion, where   the early adopters are very easy, like it drives  down costs, like most companies are going to   become cloud companies. Adoption is not the key  issue with something like cloud. I'm just giving  

you guys some contrast, because it's important as  a tech investor to know where does the Metaverse   fall in line compared to some of these other  big trends that have been very successful.    Beth Kindig (07:37): My understanding is  that we will eventually hit 800 billion   market. The key thing about the 800 billion  is that this isn't like adtech, which   has been slowly growing over 20 years. This  could potentially happen in 10-year timeframe,   so it will move very quickly.  That CAGR is around 40%.  

When you compare it to gaming, it's about a  $500 billion industry. And when you compare it   to Hollywood, it's about a $150 billion industry.  Hollywood and gaming, as we know it, will likely   completely shift. Those two seem like low-hanging  fruit, if you will. The easiest markets for the   Metaverse to capture, the entertainment.  We see that already with how many Hollywood  

companies are merging and people with a lot  of Hollywood creative experiences moving   into tech companies right now. Unity acquired  Weta, and then Nvidia has some Hollywood-type   backgrounds from Lucas and films and games. Beth  Kindig (08:36): Those kinds of merging is a pretty   big hint that Hollywood is prepared to move into  a more virtual or augmented experience for people.  

Gaming is very low-hanging fruit. So when you  look at those markets and you say, "These markets   have taken forever to build..." Hollywood's been  around for many, many decades. And then gaming,   maybe argue the '80s. I don't know. Maybe you'd  RPU, an Xbox and whatnot came out. Regardless,  

it took many years to build those markets. What  the Metaverse is proposing is 2, 3X more in about   10 years. However, there's disclaimer here, is  that we do often see these big market projections,   and sometimes they don't fully materialize until  we see a lot of real audience revenue growth.   That means the people, the eyeballs, whatever  you want to call it. Growing that revenue,   that's when market prediction is most likely  to come to fruition. Beth Kindig (09:35): I  

wouldn't say we're seeing a lot of evidence  right now that people are rushing towards   any given augmented experience. Roblox might be  the best example. Clearly they have, I want to   say, 40 million users. I need to look  that up again. 40 million is a good   size, but it's certainly not the two billion  that Facebook has or the roughly 300 million   that other social media companies have between  your runner-ups, your Snaps, your Twitters,   things like that. I wouldn't say that we're in a  place where an augmented experience is a leading  

app today. Roblox is probably the best example  of a real revenue growth coming from audience,   if you were to boil it down that way. Clay  Finck (10:17): Yeah. You mentioned that the   somewhat obvious plays for the early stages of the  Metaverse are gaming in Hollywood. You mentioned   Roblox and Unity. Those are on the gaming side.  The Metaverse ties into NFTs too and this strong   feeling of people wanting to be a part of a  community. One came to mind for me was Disney,   and I think that ties in with the Hollywood piece  because Disney really gives this community feel   and gives you this just a unique experience,  which I find really fascinating. Tying back into  

the gaming piece, I think a lot of what we're  seeing today for the Metaverse appears to look   like a video game. It doesn't yet resemble reality  or feel like indistinguishable from a reality.   I'm curious. With that, how do you go about  investing in this trend? Who do you believe that   will be some of the big leaders in this  space early on? Beth Kindig (11:12):    Yeah. I think that's a really good question. One  thing I would want to emphasize that I have not   touched on yet is I think consumers will be the  hardest to convert. There's a lot of industry   use cases where you can simulate buildings,  and so, architects are now able to   find problems in their design before they go  and build a very, very expensive building.   Nvidia is able to train neural networks for   automotive automation. So instead of having  a bunch of vehicles driving around the road,  

they can simulate a city and they can have lots  of robotics and automotive automations occurring   to where now you can just put that system into a  real life vehicle. Those are the kinds of things   where you and I walking through our day  may not realize the need there. That is so   incredibly innovative for many industries. Beth  Kindig (12:06): I would say healthcare medical as   well. If you could simulate surgeries, surgeons  trained that way, they become much sharper  

when you and I are needing that surgery. So  all of that, those industries are probably   more likely to adopt the Metaverse faster  than consumers who are very habit-driven.   You have to change habits, so that's  really tough. Then I would say within...  

You've got your gaming as a consumer market,  then you've got your millennials or your gen Z.   They are also more likely to be early adopters  because they tend to pick up technology a little   bit quicker than older generations. When I look  for investments, I'm definitely looking for   companies that serve that. Unity serves those  markets. Nvidia certainly serves those markets.   So, those are really interesting companies to  me. And then the others, I would say, are serving   maybe younger generations. Beth Kindig (13:02):   Also, I'm trying to keep really very realistic   timeframe here. As you can see, tech gets beat  up. We're very used to this. I would say this is  

more severe than typical, but I expect and fully  prepare for 40 to 60% drawdowns every single year.   There's always a new narrative as to why that  drawdown occurred. This one's steeper. We're   seeing some tech stocks get beat up even more than  60%. Some are hitting 80%. It's very, very scary  

if you don't have strong understanding of your  time horizon. I can't stress that enough. I   could sit here and tell you, "Here are a  couple companies I think are interesting,   but 2022 is not the right year to put your money  in and expect to get it back out." If you are   going to put your money in 2022, you need to be  fully prepared to not touch that money until 2025,   maybe 2027. Beth Kindig (13:58): The very,  very best investors in the world who do this  

professionally and make eight figures, nine  figures off of emerging tech are venture   capitalists. And they cannot withdraw their money  for seven years. Even if there is a recession,   a depression or whatever, they cannot take their  money back out, so you got to really think about   what are the most professional and highest  yielding investors doing in tech. They're   holding an emerging product and company  and management team for seven years.   Tech needs time to breathe and grow and pull back  and expand. And what they're proposing to do,   if you take on the Metaverse, is absolutely   incredible, to create. Some would call  it a virtual reality. Some would call it   an augmented cyberspace. Some would say  it's basically more of a 3D internet.  

Whatever you want to define it as, whatever  this becomes is going to be so incredible,   that to put your money in one given year and  expect to get it back out six months later is   not being realistic at all. Beth Kindig (15:04):   If you're investing in the Metaverse 10 years, 800   billion, you should expect to be in it for five  to seven years. It's a very early, early trend.   More important than my exact opinion on a pick  is time horizon, and I can't stress that enough   because the market is really, really hard to time.  The hardest thing to do is to try to withdraw your   money, time the market, and get back in. If you're  a day trader and you dedicate every minute of your   life to trading stocks, you rarely know what they  do. You cannot tell me the difference between  

Nvidia and AMD or Intel, for instance. They will  exit very quickly and they will be quite proud of   that. Beth Kindig (15:46): But an investor like  myself who truly believes Nvidia will be one of   the most valuable companies in the world, and  I've expanded on that in analysis, why would I   ever exit Nvidia? Because I truly know what this  company is doing. Those are two different styles,   and I don't get confused as to what my style  is. I don't look at the people that exit,  

not knowing truly what the market will deliver  and what the Metaverse or AI or automation,   and get concerned that they may have pulled their  money out and maybe I should have. That doesn't   cross my mind. Because to time, that means that  every second, every minute of my day, I have to   be prepared to get back in. And rarely do people  exit and think to get back in because they've   emotionally and psychologically closed this  position now. So to me, long story short,  

it's all about time horizon with tech,  and I think you got to be really careful   of seeing the market give losses. Nvidia's very  much down right now. I've been through many   moments where Nvidia was down and I did not budge.  To me, there's no doubt where Nvidia's headed.   That's just an example. Beth Kindig (16:51):   I mean, Unity is a great example too. Unity has   gotten clobbered a couple times since its IPO.  If you look at the company, they rank really high  

in gaming revenue. Like I said, the lowest hanging  fruit for the Metaverse is going to be gaming,   and now they're able to take their serendipitous  position and go and serve other industries,   your architects, your automotive  of engineers, whatever it is.   Again, it goes back to, if you're a very, very  active stance, you might have closed 10 positions,   you're not really diving super  deep into what they do. But to me,   finding certain stocks... And I've played  a little bit with my entry in Unity   and just sitting there and letting them become the  tech that they've set in their earnings calls they   already have. Did they already have product market  fit? They're already growing. It's one of the most  

important pieces. Beth Kindig (17:40): I just want  to like talk about what companies I like. I think   the most important thing that I can communicate  is that when you find a company that you like,   know your style. Are you an investor or  are you a day trader or a very active...   knowing that the large and far the best gains  in tech come from venture capitalists who   cannot touch their money for seven years? I  mean, they don't have a need to get an exit.   I just want to make sure people understand that  if you're trying to get into the Metaverse,   day trade, get quickly back  out, if the market doesn't like   high beta, that's a losing proposition, for  me, at least. Because why would I ever exit   quality companies? We trim them. So if we see  them topping out, we'll trim and we try not to   buy at the top. Those trade alerts are sent to  people, where we did not buy at the top as the  

gain were going up. But at the same time, the  most important thing that I'm communicating is   the time horizon is absolutely  essential for the Metaverse or anything   tech-related. Clay Finck (18:38):   That's a really good point. I think   a lot of people try and get into these high-growth  names after they've already gone up. They think   they'll be able to make a quick buck, and that's  when the market can really turn on you and you   end up really losing money. The market can really  play with investor psychology a lot. Obviously,  

a good time to buy growth stocks is when they're  down significantly, while the fundamentals   of the business haven't really changed that much.  How do you ensure that you're not buying a falling   knife, so to speak? Are you relying on technical  indicators for adding to positions? Because we've   seen a lot of growth names really get hit  recently, as you've already mentioned. Beth   Kindig (19:17): Yeah. That's a great question.  Our process actually is fundamentals forward, so   we will close a position if we feel this story  has changed. Let's use Nvidia for an example.  

If their professional visualization revenue  suddenly plummeted and it couldn't get back   up for a couple quarters, that story could  have changed. I don't think it will. I'm   just giving you guys an example. We're looking at  certain revenue segments. We are looking through   financials. A lot of companies are interconnected.  So if some are spending in one way,   that is a trickle down effect, tailwind for  other industries. We are fundamentally forward,  

so our entries are driven on fundamentals.  Our exits tend to be driven on technicals.   We got out at Teledoc at the top because  the technicals were screaming and flashing.   However, we have some long-term convictions.  I really like Roku because I think that   their first-party data and connected TV ads, and  moving even beyond their own operating system and   player to run ads the opposite direction.  Most things have been driven from mobile   for attribution and targeting. Roku now has  the opportunity to step in and run some of  

that through their connected TV ad first-party  data. Beth Kindig (20:33): That shift we saw with   Facebook yesterday, the real reason it's selling  off is it was buried in the call, but they said   they could lose up to 10 billion in revenue from  the iOS changes. Where's that revenue going to go?   I think Roku is sitting in a good spot. Long  story short, even though I like the fundamentals,   I have a portfolio manager who's very good at  technicals. We did not buy at the 470 range,   and these are real time trade alerts so our  customers always know exactly when we're buying.   The highest position I'm looking to up right now  was 350, so it's still a little it of a draw down   right now. We obviously have a ton of gains in the  stock because we bought it at 30 to begin with.  

It's how do you buy in the middle? How do you  not get stuck at the very top so that you can get   gains when you come back? Beth Kindig (21:19): The  other one would be Zoom. I like Zoom, long-term. I   think cloud communications are going to disrupt  telecoms as we know it. There's no reason for   us to have phones anymore. It can all be run  through the cloud. Companies and enterprises   are sure to see that especially as budgets come  under pressure from inflation. So with Zoom, for   instance... And actually, I think Zoom is a great  Metaverse play too. I mean, they have customers  

that could do virtual meetings and that would  be a great partnership that they already have   set up with Facebook. I'm just looking up our Zoom  entry, was about 320, and Zoom eventually was up   at 559. We are like middle buyers. Of course,  we bought Zoom originally at $90. So overall,   the position has gains, but I'm telling you,  our last position is holding at a loss right   now because we expect in the next year or two,  all those positions will have sizeable gains.   

Beth Kindig (22:11): One reason we actually show  those losses is because investors need to get real   comfortable with them. The reason why the market  takes people's money is that people panic when   they have a loss. Nobody likes to talk about  them on Fintwit or from Twitter or anywhere.   It's always, "Oh, I was the first person ever to  Tesla," or whatever it might be. The reality is   that great quality tech companies with the best  management teams in the entire industry will be   down at times. Like I said, you're looking at 40  to 60% drawdowns every single year. I'm going to  

be a tech investor for the next 10 to 15 years.  I have 10 to 15 more drawdowns in my future,   so I have to be really careful around,  obviously, knowing that these companies   will resuscitate and they will go even higher.   Beth Kindig (22:58): Great example. I am down   50% or more in Roku for the fourth time,  and that stock had four digit gains,   1000% gains for me at one point. It's obviously  less now because of the current sell off, but I  

fully expect that to be a four digit winner. So to  get a 1000% gain, you have to be willing to hold   four 50% drawdowns. We're going on two to three  of those for some of our other winning positions.   Oh, Nvidia... I mean, my goodness. That one's  been all over the place. I actually was having   an interview the other day with Charles Payne and  he mentioned how Nvidia went from $12 to $1 in the   2008 financial crisis. Could you imagine getting  Nvidia at $12? And so, you obviously don't want   to buy at the very top. You want to buy in the  middle. You also have to be realistic that nobody  

buying in the middle is going to get out without  losses temporarily. And then, the market will   boost you back up. Why? Because they're quality  tech companies. Beth Kindig (23:56): That's the   thing that people need to really understand is,  if you know what these companies are doing, if   you had any idea where GPUs were about to go, like  within Nvidia, the parallel processing, the fact   that they could run inference and training on one  chip, if you had any clue about that, $12 would've   been a steal. $6 would've been incredible. And $1  would've been probably very unrealistic because   nobody really ever catches the bottom. So  just to frame that conversation right is  

buying a falling knife, the fundamentals  should be really strong. I'm a tech product   person. I've been doing tech products for a long  time, at least 10 or 11 years in Silicon Valley,   which is obviously the most competitive market. I  pulled in a really sharp financial analyst. He's   incredible. He looks at every little line item and  can model where this tech company is about to go.   He has sharpened up our convictions. And then we  have a technical analyst who is saying, "Hold on  

tight. We're going to go down, and then it's going  to go back up." He's predicting... It's February   3rd, just to reference when this conversation is.  He thinks we're going to go one more leg lower,   and then that should be maybe it for this big sell  off. Beth Kindig (25:04): So, those kinds of roles   combined makes it to where we're not catching a  falling knife. I probably can count on one hand,   the amount of positions we've closed  for a loss that we never revisited,   meaning every company that I've really  covered and held has some gains within   one to two years of holding it. That's pretty  exceptional, right? Because technically you're  

supposed to hold for seven years. I started  moving from the private markets and covering   corporate enterprise products for enterprise  companies, over to the public markets in 2018.   All of my 2018, 2019 recommendations are well  into the mid-triple digits, so that tells you   how long you have to hold. And we do a ton of  research. How do you know you're not catching a   falling knife? If you're an individual investor  hearing this right now, I would either do that   research to find people that will do that research  for you. We're not the only people that do great,   incredible research for retail. I think  that retail individual investors need to be  

really good about finding the right  people and sticking with them is probably   the way to not catch a falling knife. Clay Finck  (26:14): The common theme I'm getting here is,   do your homework and recognize those trends  as well as understand that all of the best   investments go through these massive bull  and bear cycles. Tesla, over the years,   Amazon, Netflix, you name it. You'll see them get  hyped up and probably overshoot to the upside,  

and then overreact to negative news, and at  times overshoot to the downside as well. So,   investors have to be ready to hold on during that  volatility. Could you talk a little bit more about   your fund and the trends you are most  excited about? Beth Kindig (26:46):    Yes. We are always really keen on a couple of  things. One is trends fall out of favor, and then   they come back really quickly if they're tried and  true quality trends. Adtech has been peaking down  

so badly that I think we will reference these  months for years to come. Adtech is very cash   efficient, and so we've kept allocation there.  Even though it's been brutally beat down, this   is one where it doesn't add up. Advertisers are  going to continue to advertise. And if the rates,   CPMs, whatever it might be, go down, more  advertisers tend to step in. We saw that with the   March of 2020 crash, where eventually people  just stepped in and bought the ads because now   you had instead of $11 on Facebook, you had $7  or $8. That's a bargain for a lot of advertisers,  

so they're going to step in. I'm not into  Facebook. I don't own Facebook. I'm just   using that as an example. Beth Kindig (27:42):   There are other adtech companies where it doesn't   really make much sense to completely penalize  them for these transitory headwinds. We'll look  

for something that's greatly out of favor and we  will hunker down and hold some of those positions,   especially if it's quality, it's been around.  These industries have been around a long time   where you can get into trouble doing that,  are like pre-revenue specs or a supplier   for electric vehicles that has 50 competitors. I  actually looked up an electric bus at one point,   did a competitive analysis, which is huge in  tech. You always have to look at the competitors.   Nothing is more competitive, no industry is  more competitive than tech, so the competitive   analysis has to be really strong. Beth Kindig  (28:23): I was doing that on Proterra. I'll   just say name. It doesn't matter which electric  bus though because they're all in the same boat.   There are 30 competitors for electric buses right  now. How do you even begin to determine which one  

will take the lead? That's too much competition  for too small of a pie of the market. And this is   in an industry, electric vehicles, where you can  model. This industry's been around 50, 60 years,   like the advertising's been around forever. I  mean, that's print, radio, whatever, television,   and now mobile and connected TV ads, and it keeps  going. I'm just trying to give you a contrast as   to like we will be attracted to trends that model  well and are cash efficient, that are beaten down,   but we will not be attracted to trends that are  losing money, have no revenue and have a ton   of competitors and are early stage startups,  really, that are now on the public markets.    Beth Kindig (29:15): Then the other thing we'll  look at is the economic macro environment. I mean,  

obviously cloud is deflationary. If there's one  thing you get from this interview, I would say   cloud is deflationary. It's really interesting  because there's, I would almost call it,   alternate reality, where the market wants to tell  us they're going to get out of high beta because   of inflation. You get the number one place that  will be still standing once inflation runs its   course or whatever it might be is going to be  cloud. Companies save a lot of money by adopting   cloud products, so now their budgets look a lot  better. Cloud infrastructure as a service has  

high costs, so any companies that drive that down  are going to be very popular over this next year.   That's another one where it's like it doesn't  quite match. The narrative just doesn't match   reality. Beth Kindig (30:05): Another place for  the narrative doesn't match reality that we...  

That's our sweet spot. I love when  the narrative does not match reality.   Obviously, the chip shortage has hurt some  companies. But if you look at the financials,   a lot of chip companies are doing quite well.  And this chip shortage noise has been going on  

for minimum one year, right around at least  a year, I'd say. I was telling our members a   year ago that this is not a chip shortage, this  is a surge in demand. You got to reframe that.   Is this investable? Of course, because there's  so many industries that are relying on chips   at this point, industries that have never really  needed chips at this level. Automotive is a great  

example. It's exponentially grown that the chip  companies are getting overwhelmed and the supply   isn't happening as quickly as needed. So, how  could that not be bullish? I think that the market   scared people. And meanwhile, the most steady  performers last year, everyone wants to say it's   FANG, but it wasn't. It was semiconductors.   Beth Kindig (31:04): It's just retail   is not attracted to semiconductors, because  they're really tough tech. We are comfortable   analyzing tough tech, like more technical stuff,  and that's a sweet spot for us. And there's a  

lot of emerging semiconductor companies that  are starting to take market share, so that can   be confusing, I think, for retail and individual  investors and professional institutions as well.   But those are the places we like the most. So  to wrap it up, I would say really cash efficient   companies that are beaten down and are safe,  because the industry's been around for longer   than you and I have been alive, those tend to do  okay. And then you've got your cloud deflationary,   and then you've semiconductor surge in demand,  not shortage of supplies. I understand that   there are some supply constraints. I get that.  But what I'm saying is it's overwhelmed because  

how many industries need chips now. Okay. So, all  of that. Beth Kindig (31:54): And then, you've got   these already proven winners that I think also  get beaten down, and I like that spot. I like it   when a management team is the best at what they  do. I would put Zoom and Roku in that category.   There is some uncertainty there. The market is  clearly priced that in. Why would the top product  

fail? I mean, it's almost like a lot of people  might watch football or something. And it's like,   "Would you ever gamble in Las Vegas that Tom  Brady is going to fumble?" Sure it does happen,   but you're talking about someone on the  field who has clearly proven themselves.   I would not bet against them, even if you're...  Maybe you're on the sidelines. That's great.   I understand stepping aside while the market sorts  it out. There are a few that we have decided to  

hold a strong conviction on no matter  what the market says. I tend to do that   if I think the management team has already done  the unimaginable, which Roku has always taken   the number one position against Google and Amazon.  How did they do that? That's crazy. They've still   done it. Beth Kindig (32:57): And then, you've  got Zoom who came in out of nowhere for a lot  

of people. We were already in Zoom. Actually,  we got into Zoom January before COVID because   I actually said, and this is in print, that in  September that Zoom would go viral, and then it   went viral. The reason is that the product had a  viral component, a viral mechanic. I put that in   a research paper in September. And then that's  that technical analyst, my portfolio manager came   in and said, "We're not going to buy in September.  We're going to buy in January." We literally   bought the lowest price you could possibly ever  have in Zoom. Beth Kindig (33:27): We did that   pretty decent in Roku too. Not the lowest  price, but the lowest price after it's IPO,  

after it went up to 60 and went back down  to 30 its first time. Anyways, it's like   if we're going to go back to this analogy, "Tom  Brady doesn't ever always throw a perfect ball.   Babe Ruth didn't hit every single baseball,"  investors get really discouraged when they   see some situation... In this situation,  technically the investor's Babe Ruth.   If you're going to go up and hit the ball, it is  impossible to hit every ball and make a home run,   so you've got to be understanding of what does  success really truly look like in the markets.   I think people have a warped understanding of  that, which is that you hit every ball every time   and you can't ever revisit that ball, so to  speak. So in this case, investors could be really   discouraged in the current environment right  now. And what I would say is wait, come back,  

let's talk in a year and let's see what happened.  Because I don't believe for one minute that tech   is not going to be the leading industry  over the next 10 years. Clay Finck (34:30):    You've talked a little bit about the digital  ad space, and you're talking about how these...   You look for those places in the market where  the expectations aren't matching reality,   and it reminds me of Facebook's earnings  yesterday. I'm not invested in Facebook.   What I do know is they are growing really fast,  and they're trading at something like a 17 times   trailing P/E, which is well below the market  multiple. It's this higher growth company in an  

industry that's still growing at a very fast pace,  but it's just one of those companies that seems   where expectations don't really match reality.  That's something that I would personally   like to dig into further. I'd also like to follow  up on one of your points you made there. You said   that Zoom has this viral component to it. Could  you expand on that? Beth Kindig (35:15): Yes.   We actually published in September of 2019 about  Zoom's viral component, and we fully believed it   would go viral because you could share the URLs,  like you sent me one and I just click and I'm in.   That's viral because there's zero friction.  And to remove friction from communications   creates a viral component, because now  you're sharing a link, I'm sharing a link,   we're sharing it over there, we're sharing  it over there, and nobody has to sit there   and download a bunch of bulky software on their  computer or their phone in order to join a call.  

That may look simple. That is incredibly hard  to do. The amount of vision that the CEO had   to have there, people are underestimating.  Communications is something we all do. It's   at the core of however many people  are on this earth, seven billion,   go about their day. Beth Kindig (36:06): You can  go viral if you're serving such big needs for   everyone, every man, woman, and child in  the world. I mean, that's your viral moment,  

is Facebook as a social media company, 10, 15,  whatever it was, years ago was able to give a   product that every man, woman, and child could  use. Here's the catch though, is that the market   has beaten down Zoom on the consumer story. And  technically, Zoom was never trying to serve the   seven billion. They were creating such a great  enterprise product that if you're a CEO or you're  

head of marketing or whoever it might be,  he's on the plane, he's to join a call,   they can just quickly join a call. I don't  know if you remember the Cisco WebEx years, but   it was so hard to always figure out like, "Okay.  Did the software update? Did this happen? Now,   I'm on my mobile. Whoops. I didn't  have Cisco downloaded." It was just  

so clunky. He came from Cisco, of course.   Beth Kindig (36:56): Now, you've got your   whoever it might be, but maybe it's  the marketing person who set up the   company-wide call or maybe it was operations or  something. They can just send that to the 500 to   a thousand, to the 10,000, the 20,000 people,  and they can all immediately get on the call.   That's a big deal, actually. People  don't realize how big of a deal that is,   and then of course the video quality and things  of that sort. So when I said Zoom could go viral,  

what I meant is they had removed so much friction  from the product compared to its competitors,   that sharing those links was a very easy thing to  do among thousands of people if you're at a big   company or among your friends and family. Those  are the kinds of product things that we drill   down into, because you're saying, "How do you  make sure you're not catching a falling knife?"   I think it really helps to know what the company  does. I think it's easy to know what McDonald's   or Walgreens does. Tech is another world and  knowing what the product does is key and then  

some of this other stuff about the fundamentals  and the financials. Clay Finck (37:54):    That makes sense. Now, you know that the macro  environment and the Federal Reserve's monetary   policy has a big impact on gross stocks.  That's something that's been in the headlines   a ton as of late. The Federal Reserve states  that they want to try and raise interest rates   this year. How do you think about the effects that  might have on gross stocks? Has the market priced   in the hikes that they're going to have? How  do you think about that? Beth Kindig (38:19):    Yeah. That is you something the portfolio  manager writes really long, in-depth reports on,  

so that's really a better question for him.  What I would say though, from my perspective,   is that obviously the Fed does regulate  and introduce monetary policy, but   they don't innovate. The Fed does not innovate.  Basing your investments off the Fed, if you're   a truly believer of innovation, like I am, is  a losing game. Now, we obviously don't want to   fight the Fed. Nobody wants to fight the Fed.  Those are two different things. There's a   lot of nuances, I would say, within how  to approach that. We also aren't fully  

convinced there will be as many rate hikes as  the Fed has said there will be, but we'll see.   We aren't white-knuckling-type analysts. We  are very flexible. We change if we need to.   We try to be very dynamic. But technically  speaking, we think there's one more leg lower,   and then we think we should be pretty much done  on with this one, this sell off. Look for that,   I guess. And if something changes, then  we'll be agile enough and flexible enough to  

address that. I don't know if that answers  your question. Beth Kindig (39:25): But   one thing I guess I would add to  that is we are actually seeing   some oversold levels compared to dotcom  time. If you took like the percentage   of NASDAQ and Russell, that is off their  all time highs. We're pretty getting close   dotcom level. Totally two different worlds that we  live in today. Most tech companies are growing 40%  

or more, at least the ones that we invest in  are, and no tech companies were growing like that   when the dotcom bust happened. In 2010, tech  overtook oil as the world's most value industry.   Tech's role has completely changed. And so, it's  really tough or unfortunate to have that narrative   out there because the bounce back... We had a  perfect trial run with COVID. We had extreme   economic conditions. The whole country shut down.  You could only go to the grocery store. We saw   every business shut. What do you think that did to  the budgets? They plummeted, right? Most companies   were not bringing in any revenue. Who let us out  of that? Tech. Why? Because it drives down costs.  

So, that was a great trial run, I think, for  what role is tech playing after 20, 25 years now,   a whole different role. Beth Kindig (40:39): If  we had March of 2020 economic shelter in place   with or whatever it was, the dotcom  companies, tech would not have let us out of that.   So I think that, overall, what the market will  have to contend with is, these are your bigger   smart money institutional investors. Should I  put my money in industries that have tons of   headwinds, that are very sensitive to consumer, or  commodities and bonds that don't yield nearly what   tech can yield? Or do I put it in these quality  companies that continually show up and put 40%   or more growth? Microsoft came in strong. Google  came in strong. AMD came in crazy strong. Now,   yeah, Facebook missed. I've talked about IDFA for  years. My first article ever was that in 2018, for   the public markets, I've written tons before that  for tech startups. Facebook has serious privacy  

issues. Why are public investors not understanding  that, that Cambridge Analytica is not going to   go away, that that was the moment that Facebook's  privacy issues would forever impact the company?   I was really strong on that because I could tell  the public markets did not know how they used   third-party data. Beth Kindig (41:57):   They used third-party data in ways that   no other company uses it. So if third-party data  is coming under attack, Facebook's hanging out   there. It's the only company that has been  using it in that manner. Long story short,   I don't think Facebook's miss is indicative of  anything. I think it's indicative of how they've   been using third-party data since, really,  2014 when they launched Audience Network.  

My prediction in 2018 was that this company was  going to lose its access to third-party data,   which just happened in the earnings report. That's  a very unique story that is not representative of   tech as a broader industry. Facebook's got to  come back from that. They got to figure out   what's their next move now that third-party data  has been shut down or diminished, at least on iOS.   Basically, long story short, this earnings  season is going to be interesting because   people are saying, "Tech is too high beta and it's  too risky." And yet, tech is going to be the only   industry putting up big growth for the foreseeable  future, so let's see who wins that tug of war. I   think that's going to be tech. I hope that makes  sense. Because in 2010 tech's role really changed,  

became the most valuable industry over oil.  We've had trial runs in March of 2020 to see   what that looks like. Clay Finck (43:11):   With these technology names that you own,   volatility is something that you're very familiar  with, so I wasn't surprised to see Bitcoin in your   fund. Bitcoin is currently down roughly  50% from its high. Like mini growth and   tech names. What's your view on Bitcoin for 2022  and for the longer term? Beth Kindig (43:31):    I could not be more bullish on Bitcoin. I  would put it up there with like an Nvidia on  

current conviction. I think eventually, it will  top out and we will probably take a lot of gains.   We see it definitely above six figures for sure  before we take any gains, and I think that's   really helpful. Not only do we show our losses in  real time, but we show when we take gains. We did   actually trim a lot in the 60,000 range because we  felt like it was going to go through a pull back.   I don't know. I mean, I'll put this out there.  I don't know anyone that has allocated better to  

Bitcoin alongside stocks than us, and that's  because we are so drilled into the technical   sentiment. We have a chart that we put out as  to when we bought, when we sold, when we bought,   when we sold. And we're frequently buying  very close to the bottom, selling close to the   top. Beth Kindig (44:18): It is a key position for  us. Our portfolio could get hammered if we weren't   careful because we have a 10% position. The other  thing I should throw out there is our allocations   are very key. Our 10% positions are really  well protected. We'll take a hit on a 2 or 3%,   and that's important for people to see. Because  one day, those 2 or 3%s will become a 10%. But  

we really closely manage our largest positions,  and Bitcoin is one of our largest positions. Boy,   how many drawdowns have I been in with Bitcoin? I  mean, I had said four on Roku and beyond that with   Bitcoin at this point, I don't even care. I'm not  trying to be callous. And I do have somebody who,   again, knocks, who trims at the 60s, buys at  the 30s. Beth Kindig (45:01): But let's say   we get caught up and we didn't quite trade that  perfectly. I just don't care. I don't need to be  

concerned because I know Bitcoin will eventually  go over six figures. I think, again, trying to hit   every single ball perfectly, not even a Babe  Ruth could do that so be careful of trying to   never see a loss on your record, short term,  near temporary. Bitcoin, buckle up, get used to   it. It's an emerging trend. Crypto is an emerging  trend. Don't let Wall Street and the other one's   bully you out of a great position, and that's  really the key thing I would say around crypto   and blockchain. Crypto and blockchain, I think I  had mentioned, is the one where Wall Street got  

it wrong. Wall Street's going to keep getting it  wrong. I think you got to look at track records   and stick with the people who have really strong  track records. Beth Kindig (45:48): Again,   we're not the only ones, by any means. I did start  giving away free Bitcoin coverage, I think, around  

the 10,000 mark. We bought on our premium  side at the 7,000 mark. It went down to   4,000. Looks a lot like some positions look like  now, which we didn't really stress it. We said   Bitcoin's going to do great long-term. Does anyone  care that it was down almost 50% today back when   it was at 7,000? No. And so, that's the reminders.  I think transparency is so incredibly important,  

that we show you that we hold those losses and  that's so incredibly important. We're an actively   managed portfolio, completely transparent. We  beat Ark over and over again. We were positive   in 2021 after being up triple digits. We were  positive in 2021, and we beat Ark in 2020.   Mark was down, I think, 30% and we ended  up positive. That comes down to allocations  

and making sure your top 10% allocations  are going to win this year. That's key.    Beth Kindig (46:48): That transparency, I  think, is something we are all really confident   on. And when someone says, "Oh my God, you're..."  Somebody tried to give us a hard time because we   were down a little bit on a Shopify position  and I'm like, "Oh man, buckle up. Because  

in a year or two, Shopify is going to be a  leading tech stock." It's a contender. I mean,   I think Shopify could be one of the most valuable  companies too in the world next to Nvidia,   that kind of thing. Do we care about our loss on  Shopify? Absolutely not. I lose zero sleep over   that. Beth Kindig (47:16): I hope that makes sense  around Bitcoin. I want to really put it into...   It's a psychological mindset thing. It's one that  I've never stressed even when the market was on   our back a lot with how much of a scam, I  think, was the thing was what it was called.   Listen, global populations don't like the fiat  system. It's incredibly secure. It's more secure  

than 10,000 banks combined, and it serves a  real need at El Salvador. This was incredible.   They gave away a hundred dollars or  something of that sort for free Bitcoin,   and more people got a crypto wallet than have a  real bank account. I'm like, "Whoa." That goes   back to every man, woman, and child kind of TAM,  total addressable market thing. Bitcoin has that,   and a lot of people are really concerned that  it'll get regulated. I think it's going to be   really hard without much attention from  the masses. Clay Finck (48:08): I heard  

talks a lot about the adoption on  company balance sheets, especially public   companies. Are there any catalysts you foresee for  Bitcoin or is it just overall global adoption?    Beth Kindig (48:23): I had a few catalysts written  out in 2019 for the free newsletter. The first one   was, I actually said economic uncertainty.  Because you and I comfortably live in a country  

where, for the most part, our dollar is safe.  We put money in the bank account, it's safe.   But the far majority of  the population in the world   does not feel safe putting their money in the  bank, and their currency can be very volatile. So,   that concern and those fears around their money...  What I'm trying to say is you can... It's called   product bias, when you only buy stocks that  represent your choices. I would say Bitcoin  

is very popular in countries that are lower  GDP because there's so much uncertainty in   their financial systems, and we don't quite  have that here, so maybe it's harder for us   to wrap our head around why. We saw that happen  in El Salvador, but we had predicted that because   Venezuela went through something similar earlier,  many years ago, where the inflation was so bad and   their currency was so weak that even the extreme  volatility of Bitcoin outperformed their currency.   And so, we were seeing a flood of  Venezuelans buying Bitcoin. So, economic   uncertainty. Beth Kindig (49:32): I was saying,  even now in the United States with everything the   Fed did with liquidity could be concerning to a  lot of people, including myself. So to hedge that,  

Bitcoin is a good option. The other thing is,  after economic uncertainty, mobile payments   was another catalyst we had outlined, which is  getting easier and easier with Lightning Network,   look to Square, Block, whatever. They're a great  example of paving the way for mobile payments.   Obviously. There is a lot of work to do there.  Bitcoin is not very stable, so we'll see some   altcoins probably serve that need where it's  more stable, so you can basically be backend   money maker thing. That's one, is fixing the  stability piece but mobile payments. And then  

the other is institutional adoption, which I think  has been largely solved for. We had seen Fidelity   as an early adopter in the institution space  when we first wrote about it. They were all over   Bitcoin when Chase and Jamie Dimon were bearish.  I was leaning more towards Fidelity because...   I think their CEO is a woman, actually, which  is pretty neat. Basically, I would say those  

are the key things and we've ticked some of  those boxes already. Economic uncertainty   probably has been ticked, and then it might  be ticked even more as time goes on. And then,   institutional adoption. What would be left  is mobile payments. Clay Finck (50:51):    Yeah. It's very exciting. I think a lot of funds  that only hold stocks are very skeptical about   Bitcoin, so it's really cool talking to someone  like you, where you have the flexibility to   have the open mind to go into a new asset class  that adoption rate just growing very fast. Beth,  

with that, thank you so much for coming  onto the podcast. I really appreciate you   sharing your insights on the Metaverse, emerging  trends, Bitcoin, and growth stock investing.   Before we close out the episode, where can the  audience go to learn more about you and the I/O   Fund. Beth Kindig (51:25): Yeah. Thanks for  the question. I would go to our site and sign   up for our free newsletter. Every week, we send  out really quality analysis from myself and two  

financial analysts, and sometimes the portfolio  manager does macro. We work really hard on that   free analysis to make it accessible to everyone.  We also have a premium product that allows people   to see every trade we do. Our trades are texted  to your phone through SMS, and they are emailed to   you, so real-time portfolio management. And you'll  see when we're buying and when we're selling.   It's also really great probably to see, even with  this current sell off, there's key positions we've   been building. That's the kind of thing we do  on premium side. And then, you get really end   up the deep dive analysis on some of the stocks we  don't talk about on the free side that have been   winners. Clay Finck (52:13): Awesome. I'll be sure  to link all those in the show notes. Thanks a lot,  

Beth. Really appreciate it. Beth Kindig (52:17):   Thank you, Clay. Really appreciate it.

2022-02-24 11:23

Show Video

Other news