21 May Webinar Recording: The Golden Age of Growth
Thank you for joining us on 20 May 2021 for The Golden Age of Growth webinar. Here’s the recording.
Here’s a transcript of the webinar.
00:00 min to 2:11min
A very warm welcome! I hope everybody is staying safe during this period. I am Joanna Sng, one of the co-founders of The Smart Investor.
With me here this evening is David Kuo and Chin Hui Leong. The other two co-founders of The Smart Investor.
So, why are we here tonight?
It’s the first anniversary of The Smart All Stars Portfolio, which is why we are running this special webinar today!
In the past decade, we’ve seen the lights of Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL), all the ‘A’ companies, grow to be behemoths.
And even surpass the trillion-dollar market cap mark.
With the pandemic accelerating the tech industry’s growth, 2020 has been one of the best years ever for tech stocks.
What about this year? What about 2021?
Tech stocks have been up and down, even underperforming the S&P.
So, why then are we still focusing on cloud computing in today’s webinar?
My co-founder Chin will be explaining more in his presentation later.
In fact, he has a story to share with everybody here. So again, the program for today, Chin will be making his presentation in a few seconds.
And then after, we will open for questions and answers.
I will need to emphasise that we will be prioritising questions relating to the topic that we’re covering today.
And once again, please submit your questions as early as you can, so that we can answer as many of the questions as soon as we can.
We’ll try to collate them and answer them together.
Also one last thing is that tonight’s session will be recorded.
We will try to post it in the next one to two days.
On top of that, a transcript of tonight’s webinar will also be available on our website. So, we will be emailing the recording of tonight’s webinar together with the transcript to you.
Do keep a lookout for it.
I will hand it over to Chin.
So Chin just share your screen and we’ll be ready to listen to your presentation and your story.
Thank you everyone. Give me a minute.
2:22 min to 13:50 min
Welcome everyone!
And thank you Joanna for hosting this session.
I’m really happy to be joined by so many of you today, because I want to talk about something which has been in my mind for a while, because I do really believe that we are the golden age of growth.,
But let me share with you a story.
And this happened around 25 years ago. So 25 years ago, I was in university, I was in my room on my computer and I was using this search engine called Yahoo.
Now, before you judge me, everyone was using Yahoo back then, Yahoo was the dominant search engine.
If you go on the internet, the first website you go to is Yahoo.
You went there to search for anything you want.
Then something interesting happened, a friend happened to walk into my room and he just casually mentioned that he found this new site called Google.
Now, I went on Google and instantly loved it.
It was so simple.
I’ve been using Google ever since.
Now, this is somewhat of a random occurrence, but this story stayed with me.
That’s because as I look at the growth trends that are available today, we have no shortage of growth trends, which brings me back to this story.
Why is it that some companies end up like Yahoo?
And just because a friend “walked into my room”, I started using Google.
Why is it that you have two companies in the same space — and yet one is a trillion dollar company and the other one has just faded into the background.
I think this is an important question to ask, especially when we are in the golden age of growth.
When I was using the internet some 25 years ago, there were only 36 million people connected to the internet.
Just last year, there were more than five billion people connected to the internet.
Much of this is due to the proliferation of devices, which you and I are using today to watch this webinar.
We now have a distribution channel for any software company to reach us and the market size for these software companies is as big as 5 billion, theoretically.
And what does this mean?
There has been a 140 times growth in the number of internet users worldwide.
And there’s no shortage of growth trends.
Now you’ve heard of many of these trends: electric vehicles, finTech, AI, genomic Sequencing, 5G and much, much more.
This slide can’t fill all of them, right?
But the question is, for all these growth trends available, why did we choose to focus on cloud computing?
There’s so many growth trends out there.
Why is cloud computing the one which we want for our portfolio?
So let me tell you why.
When it comes to growth, I always look at it through the lens of two main parameters.
One is magnitude. The other one is probability.
Now magnitude refers to the growth runway ahead for the company.
Today, I feel that there are so many more trends out there that there’s no shortage of growth trends.
But the growth trends alone does not guarantee success because we need the right companies to actually take advantage of these growth trends.
In essence, you need more “Googles”, less “Yahoos”.
You need the companies to turn all these growth trends into their full potential.
So, you need both.
And for cloud computing, I believe we have both.
Firstly, when you talk about magnitude or runway, if you look at the enterprise software space, this is where software-as-a-service (SaaS) operates.
The current spend is more than half a trillion dollars, right?
And let me emphasise the word here, spend.
This is not a projection.
This is not something which is projected on an Excel spreadsheet.
This is actual money being spent. It is a real thing happening.
It’s not a guess. It’s not nascent.
It’s not something which may happen 10 years from now.
It is already happening.
And the market side alone for enterprise software is more than half a trillion dollars.
Now, to put this into perspective.
If you look at Salesforce (NYSE: CRM), one of the largest SaaS companies out there. Their revenue last year or the last fiscal year was US$21 billion.
So, just a small fraction of this entire market.
And if you extend your horizon and look beyond, and look at the overall IT spend.
I’m talking about infrastructure, data centers, connectivity, telecommunications, hardware, and so forth.
The overall spend for IT is US$4 trillion.
There’s an enormous amount of room for many of the SaaS companies to grow.
Now I mentioned magnitude and also probability.
You also need the right companies to take advantage of these trends.
Now, thankfully, there are plenty of choices out there.
The last two years alone, you have seen more than 20 companies in the software service space come public.
Now, not all of them are going to be successful.
Not all of them will have a high probability of succeeding.
So to be able to take advantage of the trends together with picking the right stock is really, really critical.
And this is why the Smart All Stars Portfolio, we are doing something called The Smart Portfolio Builder.
And this is a portfolio which is very much inspired by David Kuo.
This is David’s concept.
I tweaked it to fit the growth mindset.
So if you look at the portfolio, we have three major layers. The first, we call Titans.
These are very established companies that can still grow, but maybe the magnitude is not as high, but the probability, in our opinion, is high.
So think about companies such as Microsoft (NASDAQ: MSFT), very well established, has been around for more than 40 years, and has performed remarkably over that period of time.
On top of the Titans will be a layer called Leaders and true to its name, these are companies that are leading within their space, which they’re operating in.
An example of leaders would be something like DocuSign (NASDAQ: DOCU).
DocuSign is an e-signature service that has a market share, which is seven times its next larger competitor, which is Adobe (NASDAQ: ADBE).
And these are the kind of leading companies we are looking for.
The probability of success is still not confirmed, but we see a larger magnitude compared to the Titans.
And finally, right at the top, at the apex is where we go wild a little bit, our Trailblazers.
We’re looking for companies that are still nascent, but we’re going to control our risk for that segment and make sure that we do not overindulge in such companies.
We want to be involved in some of the nascent companies, but we readily acknowledge some of these companies have a lower probability or higher uncertainty of success.
And therefore we want to put them at the top and make sure that we are managing our portfolio in a controlled manner.
Now, I think that this shape is really important because it’s not just about names or companies that you pick, but it’s about how you pick and how much you put within each company and how you actually form a portfolio, which helps you take part in the growth of cloud computing.
Because what we see here today is a growth runway ahead.
As I just showed, and also the number of stocks, which are available to actually take advantage of it and this portfolio helps you take advantage of it.
In summary, you have a wave happening right now. A big wave.
But don’t just take it from me.
The CEO of Microsoft, Satya Nadella believes that we have the second wave of digitalisation.
In fact, Nadella is even more bullish compared to what I just showed you, because he believes that the tech spend today, if you compare, whatever is spent on tech against the global GDP, it is only 5%.
5%, a very small percentage.
He believes that over the next decade, it’s going to become 10%.
Now think about that four trillion number which I just showed you.
What if that number becomes eight trillion dollars in the future? It’s a huge wave. But don’t forget you need the right players. You need the right portfolio to actually take advantage of it.
And this is how you invest and participate in the growth.
Now I want to end with just two examples of stocks we’ve picked in the past.
Now I’m showing this because sometimes when you look at all these waves and you look at all this, what has happened in 2020.
You might think that …
Hey! Maybe you’re too late to invest in this trend.
Well, let me just tell you that in February 2017. The team, which includes myself, David and Ser Jing, actually picked Amazon as a stock.
Now, when we picked it, we got a few emails.
I’m not going to lie.
Some of the members out there were not too happy with the pick because they felt that Amazon was too large and too well known.
And there were also comments that the pick was boring.
But guess what? Since February 2017, Amazon is up almost four times since then. Four times.
And this is not an isolated incident.
In November 2016, we picked shares of Apple and we got the same response. Apple is too boring, smartphone growth is over, but Apple shares have grown four and a half times.
Now I’m showing you these two examples to let you know that you do not always have to go after trends which are nascent or unproven in order to make satisfactory returns.
Because as I look at these two examples, if you call that boring, then I would love to have more boring.
We believe very strongly that cloud computing is one of those trends, pretty much like investing in Apple or Amazon five years ago.
And I do think that the growth can continue in the future.
And with that, I’m going to end my presentation to leave more time for the QnA. Thank you everyone!
Great! Thank you, chin. So, wow! We’ve received a lot of questions already. That’s really good.
Again, do send in your questions early so that we can answer them if possible. Also for those who just joined us and, you might have missed some of Chin’s presentation.
Don’t worry, a recording of this webinar and a transcript will be available on our site in the next two days. And we will be notifying you via email once it’s ready.
So do keep a lookout for it in your email inbox.
Note: Questions have been edited for clarity
14:30 min
Is the equity market in a bubble right now? What about the bond market?
17:40 min
Cloud computing is a fairly broad descriptor. It would be helpful if you could zoom in further to the level of either specific segments or companies.
For example, are you referring to the likes of Microsoft or Salesforce or Workday (NASDAQ: WDAY)?
20:33 min
David, what is your opinion on the rotation from growth to value stocks with inflation and interest. Since it would depress growth stocks for muscle. How do you manage the downside risk?
26:45 min
In Smart Investor’s opinion, which is a US-listed wide-moat growing cloud company that investors can consider to buy at a good price?
31:10 min
David, can you share more about the Smart Portfolio Builder please?
38:04 min
Inflationary pressures are very real and it seems to hit growth stocks/tech stocks particularly hard, will this be a long-lasting risk to the stocks in the All-Star portfolio?
How would a rise in interest rate affect the stocks in All Stars?
40:43 min
I understand that you use the Smart Portfolio Builder to build a US growth portfolio. But what is All Stars really about, and how can we still join because you’ve already been investing for some time now?
42:35 min
If I’m just starting out, what are the top stocks in the All-Star portfolio to start with, currently?
43:00 min
The Biden administration has proposed to increase the corporate tax to 38% from 21%. Could you elaborate on the impact on the growth and profitability of companies?
47:38 min
Why bother stock picking when it is easier to pick a Cloud ETF on a buy & forget basis?
49:48 min
Since David says equity is in a bubble, should we sell all our stocks ?
David, do you have any worries about the market now? And what do you do about your worry?
What will you do with your stock portfolio when the stock market crashes?
58:00 min
Do you think the FAAMG can still grow at the same rate for the next 20 years?
For the past 20 years, Apple has been doing very well and grew many folds.
Will cloud computing do as well as Apple? How well do you think it can grow? 10 times, 20 times?
FAAMG is an acronym for the stocks of American technology companies: Google, Apple, Facebook, Amazon, and Microsoft.
Disclosure: Chin Hui Leong owns shares of Alphabet, Apple, Adobe, Facebook, Amazon, Microsoft, Salesforce, and DocuSign. David Kuo owns shares of Apple and Microsoft. Joanna Sng owns shares of Alphabet, Apple, Adobe, Facebook, Amazon, Microsoft, Salesforce, and DocuSign.