Metaverse and Technology Trends w/ Beth Kindig (MI144)
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 pets.com 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
