Posts tagged ‘technology’

Revenge of David: Technology Empowers Small-Fry

The garage tinkerer’s canvas is manifested through these relatively new 3-D printers.

What happened in the virtual world with software and operating systems over the last 15 or so years is now happening in the bricks and mortar world. Linux, a free open source software operating system, was designed in the early 1990s and initially registered its trademark in 1994. The no cost system takes advantage of charitable brainpower by using programming prowess from others around the globe.

The same phenomenon is happening in the real world, and critically acclaimed Wired writer Chris Anderson wrote about it this trend in a recent article, In the Next Industrial Revolution, Atoms Are the New Bits. With the help of a laptop, free design software, and a few mouse clicks to a manufacturing plant in China, Anderson shows how a small fry entrepreneur with a good idea can become a successful micro-factory in weeks. This same process might have taken traditional manufacturers years in the past. Accelerating production from novel idea to output reality are new 3-D printers, robotic-like equipment that can build real time prototypes from molten plastic (see picture above). Sounds expensive, but these former six-figure devices can be purchased for less than $1,000 thereby allowing state of the art products to be made with relatively little capital and inventory. In other words, the small fry entrepreneur David now has the ability to become a fine tuned Goliath with the help of democratizing technologies. The high barriers to entry have been toppled down by creative, risk-taking entrepreneurs.

In describing this manufacturing marvel, Anderson highlights Local Motors, an open source car company that managed to produce a car in months what would have taken legacy automakers years to build. Rather than hire a host of expensive engineers (the company only had 10 employees), Local Motors relied on a global community of volunteers (also called “crowdsourcing”) to design the original “Rally Fighter” automobile. Utilizing a ratio of 500-to-1 volunteers to employees has allowed Local Motors to leverage the power of atoms to bits. What Anderson calls “garage tinkerers” are slowly taking over the world.

Building Your Dream

On the surface, the micro-factory concept sounds fairly straightforward, but how does one practically pursue this strategy? Anderson has five steps to building your dreams:

1)      Invent: Come up with idea and check U.S. Patent and Trademark office to make sure idea has not been used before.

2)      Design: Use 3-D design tools to model out your idea.

3)      Prototype: Upload your design to a 3-D printer and watch prototype idea grow into reality.

4)    Manufacture: Find manufacturing partner online through sites like Alibaba.com (1688.HK).

5)   Sell: Market your product online to reach the masses.

If you look back in time, the industrialization of America squeezed out the little guys because small time citizens did not have the capital or expertise to keep up with the big boys. Thanks to the internet, the playing field has been leveled and the small-fry David can not only compete with Goliath, but can also defeat him.

Read Chris Anderson’s Famous The Long Tail Article from 2004

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct positions in Alibaba.com or any security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

April 30, 2010 at 1:37 am 2 comments

Decade in Review

We laughed, we cried, we kissed another ten years goodbye. It is virtually impossible to cram ten years into one article, nonetheless I will attempt to chronicle some of the central and silly events that bubble up in my memory bank.

2000

Capture of Elian Gonzalez

  • Technology-heavy NASDAQ index peaks at 5,132 before completing its -78% decline by late 2002.
  • Y2K (Year 2000) fears do not materialize and technology orders begin downward slide.
  • AOL buys Time Warner for $164 Billion in hopes of converging media and internet worlds.
  • Al Gore Democratic nominee for the Presidency wins popular vote but loses election to George Bush after effort for Florida recount fails.
  • Elian Gonzalez, six-year old boy returned to Cuba.
  • Reality TV show Survivor finishes first season with Richard Hatch winning prize.

2001

Enron Logo at Headquarters

  • Apple introduces iPod digital music player.
  • Enron files Chapter 11 bankruptcy.
  • Wikipedia online community encyclopedia launches.
  • 9/11 attacks occur pushing economy further down.
  • Alan Greenspan starts 1st of 11 rate cuts  in 2001.
  • China joins WTO (World Trade Organization).

2002

 

  • Severe Acute Respiratory Syndrome (SARS), an atypical form of pneumonia, rears its ugly head in the Guangdong Province of China. 
  • SEC files charges against WorldCom and Tyco international in connection with accounting irregularities
  • United Airlines files for bankruptcy.
  • American Idol television singing contest begins first season.
  • Guantanomo Bay detention camp is opened.

2003

  • Federal Funds rate reaches a 45 year low at 1.00% – fuel for future credit bubble.
  • $350 billion in tax cuts approved, spanning a ten year period.
  • Iraqi Gulf War II commences with “shock and awe” military campaign.
  • Space Shuttle Columbia disintegrates upon attempted reentry into the Earth’s atmosphere.
  • Broad stock market recovery (>90% of stocks in S&P500 climb), including a +50% rise in the NASDAQ index.
  • Martha Stewart indicted for using privileged investment information and then obstructing a federal investigation.
  • Arnold Schwarzenegger, movie star, becomes governor of California.

2004

  • Google (GOOG) goes public with IPO at $85 per share.
  • Mark Zuckerberg unveils Facebook and people begin “friending” each other.
  • Comcast makes failing unsolicited bid for Disney. K-Mart buys Sears with aid of Eddie Lampert
  • Ronald Reagan, 40th President, dies at 93.
  • Janet Jackson and Justin Timberlake experience “wardrobe malfunction” on Super Bowl halftime show.
  • Boston Red Sox win their first World series since 1918.

2005

  • P&G announces $57 billion acquisition of Gillette. Conoco Philips buys Burlington Resources for over $30 billion. Bank of America buys credit card company MBNA.
  • Ben Bernanke is nominated as new Federal Reserve Chairman.
  • Hurricane Katrina overwhelms New Orleans as 80% of city becomes covered with water.
  • North Korea announces its nuclear weapons arsenal.
  • YouTube starts sharing online videos before Google Inc. eventually buys company.
  • Lance Armstrong wins 7th consecutive Tour de France.

2006

  • Inverted yield curve turns out to be an accurate leading indicator for 2008 recession despite markets advance.
  • Internet activity accelerates: Google buys YouTube after News Corp buys MySpace. Twitter is introduced.
  • Playstation 3 (PS3) and Nintendo Wii unveiled.
  • Merger & acquisition activity reaches $3.79 trillion worldwide, surpassing previous 2000 peak (Thomson).
  • Options backdating takes center stage. United Health and technology companies were among those dragged into controversy.
  • Housing market peaks.

2007

 

  • Markets continue multi-year rally with three major indexes holding single-digit gains. Emerging markets build on previous year gains – Shanghai composite +97%.
  • Monoline insurers MBIA and rival Ambac become early canaries in the coal mine given the greater than $1 trillion in exposure on insuring securities.
  • Apple presents the iPhone – part phone, part music, part computer.
  • KKR (Kohlberg Kravis Roberts & Co.) and TPG complete $44.4 billion buyout of Texas power company TXU Corp.
  • Microsoft Vista operating system introduced after five years of development.
  • Housing decline accelerates as Countrywide Financial announces 12,000 job cuts (20% of its workforce), New Century Financial (#2 subprime lender at one point) files Chapter 11 bankruptcy, and two Bear Stearns mortgage based hedge funds go under.
  • Chuck Prince, Citigroup CEO, steps down.

2008

 

  • Bank of America agrees to buy Countrywide mortgage company for about $4 billion.
  • JPMorgan Chase agrees to buy Bear Stearns for $2 per share in a sale brokered by the Fed and the U.S. Treasury – eventually bid revised upwards to $10 per share (~$1.1 billion) to appease angry shareholders.
  • Lehman Brothers goes bankrupt.
  • Bank of America agrees to acquire Merrill Lynch for about $50 billion.
  • Government takes over AIG after providing insurance company $85 billion loan.
  • Goldman Sachs and Morgan Stanley become bank holding companies to improve access to capital.
  • Washington Mutual Inc. is seized by FDIC and sold to JPMorgan Chase in the biggest U.S. bank failure in history.
  • Wells Fargo & Co., agrees to purchase Wachovia for about $15.1 billion, trumping Citigroup’s bid.
  • $700 billion TARP (Troubled Asset Relief Program) eventually approved by Congress to stabilize financial system.
  • Eliot Spitzer resigns after prostitution scandal.
  • Michael Phelps wins eight gold medals at the 2008 Beijing Summer Olympics.

2009

 

  • Barack Obama inaugurated in as 44th President of the United States. Healthcare reform bills pass in both the House and Senate.
  • GM and Chrysler declare bankruptcy.
  • Recession ends as stimulus kicks in and inventories rebuild. Government announces new PPIP and TALF programs.
  • Warren Buffett pays $26 billion to buy Burlington Northern Santa Fe. Other announcements include: Oracle /Sun Microsystems; Pfizer/Wyeth; Merck/Schering Plough; and Pulte Homes/Centex.
  • Commodities and emerging markets rebound. Gold tops $1,000 per ounce.
  • Signs of housing bottoming as low mortgage rates, tax credits, and declining inventories create a more constructive environment.
  • Madoff goes to prison after he was convicted for a $65 billion Ponzi Scheme.
  • Chesley B. “Sully” Sullenberger successfully carries out the treacherous crash-landing of US Airways Flight 1549 into the Hudson River.
  • Dubai debt debacle forces Abu Dhabi to lend support to calm global markets.
  • Tiger Woods admits transgressions after car crash pushes him into spotlight.

2010 ???

Time will tell what the new year will bring. Stay tuned for some iron clad 2010 predictions coming to an Investing Caffeine blog near you in the not too distant future!

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds and BAC, AAPL, and GOOG, but did not have any direct positions in the following stocks mentioned in this article at time of publication (including AOL/TWX, VIA/CBS, NWS, TYC, UAUA, MSO, CMCSA, DIS, SHLD, PG, COP, Nintendo, MBI, ABK, MSFT, C, JPM, AIG, MS, WFC, GM, Chrysler, BRKA, ORCL, JAVA, PFE, MRK, PHM, BNI, LCC, GLD, and NKE). No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

December 29, 2009 at 1:00 am 1 comment

Back to the Future: Mag Covers (Part II)

In my most recent article, I went Back to the Future  to examine the role magazine covers play as a contrarian indicator in fear-driven markets like we experienced in the 1970s (see previous story). Investing is both an art and science. While measuring the scientific aspects of the market can be more straight-forward, the behavioral and emotional sides to investing are more subjective. Magazines act as sentiment sensors to gauge the fear and froth pulses of the general investing public. Since last time we explored fear, let’s check out some froth from the 1990s technology boom.

How to Invest in the Hottest Market Ever

Hottest Market 2000

Seeing the forest from the trees can be difficult when you’re trapped in the thick of it, but the March 2000 issue of Money magazine’s “How to Invest in the Hottest Market Ever” is a classic example of the mentality that reigned supreme in the late 1990s technology bubble. Objective, fact-filled articles that challenge the status quo are not necessary to generate sales, but articles and magazine covers that pander to the raw emotions of fear and greed keep the cash register ringing. If you don’t believe me, just read the sensational headlines at your local grocery store explaining how swine flu will kill us all and how there are millions to be made in melting gold coins and jewelry (read gold article).

I love some of the quotes from the article, especially from Pam, the 51 year old divorced New York City art museum volunteer who bought AOL, Microsoft, and Qualcomm (which rose +2,621% in 1999) who dismisses diversification: “I feel pretty safe now.  I think we are in a new paradigm now.” Yeah, a “new economy” that catapulted Yahoo to a Price/Earnings ratio of 400x’s earnings; Cisco 109x’s earnings; and Sun Microsystems practically a bargain basement steal at 88x’s earnings. For reference purposes, the S&P 500 index currently trades for about 14.6x’s estimated 2010 earnings and 19.5x on 2009 estimates.

GetRich.com

GetRich.com

Another landmark masterpiece I love is the September 1999 Time cover, “GetRich.com.” Never mind the unabated technology boom (excluding a brief hiccup in 1998) that inflated the bubble for a decade – Time still managed to unearth the “Secrets of the New Silicon Valley.” The article goes onto to express the get-rich formula:

“Can’t program a computer? Not a techno savvy? Not a problem. If you’ve got a hot Internet business idea, Silicon Valley’s astonishing start-up machine will do the rest.”

Like a drug dealer pushing heroin on an addict, the article goes on to entice its readers to question “Why have a boss when you and three buddies can build your own publicly traded company in two years? Windows this big don’t open very often.”  

A Few More Favorites

BW Boom 2-14-2000

Great timing on this February 2000 cover…a month before the crash!

Everyone Rich 1999

This July 1999 cover captures envy. Everyone's getting rich!

As we saw during the technology boom, media outlets have no shame in shoveling greed inducing slop to the hungry general public. Like all historical events that end tragically, valuable lessons can be learned from our mistakes. Developing a discerning palette for the news we digest is a critical quality to generating an informed investment decision process. With the 1970s and 1990s behind us, as the last of my three part series, we’ll use time travel to another period to see if modern magazine editors fare any better in market timing as compared to their predecessors. Please excuse me while I jump in my time machine.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

 

DISCLOSURE: Sidoxia Capital Management (SCM) or its clients has a long position in CSCO and QCOM at the time this article was originally posted. SCM owns certain exchange traded funds, but currently has no direct position in YHOO, MSFT, or JAVA. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

November 12, 2009 at 2:20 am 6 comments

Technology Does Not Sleep in a Recession

Hibernate Bear 

Our economy may be coming out of a long economic hibernation; however technology does not sleep through a recession. Gordon Moore, co-founder of Intel Corporation, has proven this trend true through his groundbreaking piece written in the April 1965 issue of Electronics Magazine. In the article Mr. Moore predicted transistor densities would double about every two years (“Moore’s Law”).  Transistors can be thought of as the brains of electronics devices, and the industry (Intel and other semiconductor manufacturers) has been boosting the brain power of electronics for decades. How far has the industry come? The number of transistors contained on a chip has gone from 16 in 1960s to over 600 million today – now that’s what I call progress!

These achievements have been nothing short of revolutionary, and many people consider the introduction of the transistor as the greatest invention of the 20th century.  According to many industry experts, Mr. Moore’s forecasts have been shockingly accurate and many believe “Moore’s Law” will hold true for years to come – despite challenging technological limitations.

Source: The Financial Times

Source: The Financial Times

We may curse at our computers (I absolutely despise Vista), but there is no arguing with the huge productivity and standard of living improvements we have experienced over the last forty years – since the introduction of the transistor. Many take their GPS, Tivo, WiFi laptop, iPhone, and HiDef TVs for granted, however I for one thank Gordon Moore and those diligent engineers for making my geeky tech dreams come true.

However the cost of further advancements is becoming pricier. As line widths (the ability to add more transistors) narrow, the costs of building fabrication plants (“fabs”) with the necessary equipment are running in the multi-billion range. The Financial Times (FT) article talking about semiconductor trends mentions a $4.2 billion state-of-the-art factory in upstate New York that is just beginning construction. The FT notes that only two players (Intel and Samsung) have firm plans to build 20 nanometer fabs. For comparison purposes, one nanometer is equal to one-billionth of a meter and a human hair is 100,000 nanometers wide. In other words, a nanometer is pretty darn tiny. To further illustrate the point, Intel has managed to fit up to 11 Intel Atom processors – each packed with 47 million transistors – on the face of an American penny.

Source: The Financial Times

Source: The Financial Times

As the chip making industry become more costly, fewer semiconductor manufacturers will be playing in the sandbox:

“Intel argues that only companies with about $9bn in annual revenues can afford to be in the business of building new fabs, given the costs of building and operating the factories and earning a decent 50 per cent margin. That leaves just Intel, Samsung, Toshiba, Texas Instruments and STMicroelectronics.”

 

The economy may still be in the doldrums, but the $60 trillion global economy (as measured by Gross Domestic Product) never sleeps – technologies created by Gordon Moore and others continue to propel amazing advancements.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

August 24, 2009 at 4:00 am 4 comments

Calamos Still “Growing” Strong

Calamos

Calamos Investments recently came out with their quarterly Market Review and Outlook.  John P. Calamos, Sr., the Company founder, began investing his family’s money over 50 years ago and is well known for their successful “growth” style of investing. Calamos founded Calamos Asset Management in 1977, and won BusinessWeek’s best manager for 2003 and 2004. Over the years, the company diversified from its bread and butter convertibles into equity, enhanced fixed-income, global and international, core bond, cash management and alternative strategies.  Overall, the newsletter offers a fairly sobering outlook (“Longterm Scared”); however there are some excellent investing nuggets, especially when it comes to the firm’s current positioning:

“Because we are not in a secular bull market, investing discipline is even more important. We believe these are the rules for today’s environment”:

1. Washington D.C. is the new growth city

2. Valuations will not get as stretched in the equity markets and growth expectations will be revised down considerably

3. Old-fashioned dividends mean something

4. G7 competitive devaluations and protectionist legislation will become the norm

5. To grow, emerging nations must become consumption driven and attempt to become independent of the developed nations

6. Knowledge is free, but capital may be much harder to get

7. Real returns after tax will take on new meaning

8. Baby boomers will reprioritize spending

9. The rules will change often!

Technology Exposure: For those that have followed my writings in the past, you are familiar with my positive bias towards technology. The technology sector is littered with land mines and risks. Nonetheless, through technology, our country has and will continue to innovate new products and services that will improve our standard of living. The “Technology Revolution” is not only benefiting our society, we are exporting the fruits of our discoveries to developing countries across the world. Take Intel Corporation (INTC) for example – it garnered about 85% of its revenues in 2008 from international markets.

Here is what Calamos has to say about their “Significant Overweight” exposure to the Technology sector:

“Productivity enhancement and cost controls should help technology spending.”
  • We see consumers remaining willing to purchase certain “special” products such as iPhones, laptops and flat-screens.
  • We have found software companies offering stable revenue streams, strong balance sheets with lots of cash, and products that offer solutions for cost reduction and productivity.
  • The sector will also benefit from global infrastructure stimulus spending.
  • Stock valuations are attractive and the risk/reward is compelling.
  • The sector may be re-establishing its leadership position in the equity market for the first time since last decade’s collapse.”

Materials and Energy Exposure: Developing countries are joining the party too, albeit later than the rest of the partygoers.  The price of admission to the party is access to valuable commodities. Calamos has other reasons to be overweight the Materials and Energy sectors:

  • Muted recovery implied in stock valuations.
  • Further U.S. dollar devaluation and global stimulus spending should help boost commodity prices.
  • The small capitalization of this sector and volatility of commodity prices will again make it prone to large price swings.
  • U.S. dollar devaluation should help support energy prices.
  • Mid-East turmoil adds to the attractiveness of this sector as it can hedge unforeseen energy price spikes.
  • Stock valuations appear reasonable but government intervention will make this a difficult sector to value.

 

Like all great managers, Calamos has taken his lumps, but through it all his firm is still “growing” strong.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

July 29, 2009 at 4:00 am 1 comment

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