For years our leading growth companies have run free. The current share price beat-down is due to sector rotation, not stock specific. Money’s flowing out of tech including these big growth names, and into defensive and industrial positions. It will return. As Amazon, Alphabet, and Facebook, have grown, we the people have witnessed their nearly unchecked power. All “growth” stocks and their underlying companies eventually mature. That means “ARG” or accelerating revenue growth vanishes, leaving behind a “stalwart,” or stabilized entity expanding more in the high signle digits. This scenario appears to be the now closer phase of our massive market leaders. But not yet. The signs are however, are in the clouds.
StockJaw is already there. Here we introduce to readers our comprehensive on-going list of the gathering threats to AMZN GOOG/GOOGL, FB, and TWTR.
“Crooked Hours Report.”
Where the path to profit becomes kinked.
T h e entire strategy of investing is to be there when it’s good, and be gone before it’s not. That means identifying potential threats in advance. Long-term investing calls for long-term looking. Companies operate according to business models, and planned growth paths. Cracks eventually appear in every model or plan, even for our very best businesses and companies. The “Crooked Hours Report” has arrived. When cracks form in otherwise bullet-proof business models/growth paths, such paths become crooked, and harder to achieve.
Solely watching for problems within your companies is not enough. Anticipation of problems is key. Our report is designed as a bullet-point list of exactly what to watch, and look for. Quickly learning and acting upon formative events, prior to price moves, is what investing is all about. That’s why StockJaw now launches our
“Crooked Hours Report.”
Crooked Hours Report–Macro.
I n our opinion government intervention remains the single largest threat to the majority of our portfolio–Amazon, Facebook, Alphabet, and Alibaba. The Economist(Nov. 4, ’17) reports that between 1970-1999, U.S. anti-trust regulators averaged 16 lawsuits per year. Between 2000-2014 their average dropped to 3, a greater that 80% reduction.
When public opinion shifts against FB, Alphabet, or AMZN, regulation’s not far away.
Any legislative attempt to regulate these uber-powerful companies will likely stem from an event raising congressional “worry,” followed by public outcry. For example, the streaming of a murder on FB Live resulted in palpable public concern and a flurry of sensational news accounts. Everyone witnessed the upset. Yet FB Live also provided clear and damning footage of a police shooting many yet feel was criminal. As of now, people find far more benefit than concern. That’s good, and we think a more stable and lasting view. But things change. Attitudes shift. When the public begins to view these four companies as a threat–which they will–regulation won’t be far behind.
However, any legislative attempt to regulate AMZN, FB, or GOOGL/GOOG, could prove very difficult. Can you imagine the legal teams any of these companies would build? Think U.S. vs. Microsoft. When the U.S. attorney threatened legal action, Microsoft’s unspoken response was “bite me,” and Bill Gates meant it. MSFT proceeded to fight the entire federal government to an embarrassing frustrating draw. Fed prosecutors hate losing more than doing nothing.
Donald Trump routinely speaks with a pro-business tone. Nonetheless, he has already clashed personally over Twitter with Jeff Bezos–AMZN, referring to the company as a monopoly. Bezos did not reply diplomatically, and humiliation is never a solid strategy. Similar statements have been directed at Facebook, in particular focusing on the streaming of homicide on FB Live, Russian election interference via FB, the general rise of fake news, and the “echo chamber” effect on public perception. Many call it a “utility,” along with Google search.
Huge success creates huge targets. Ironically, our top-flight companies routinely become congressional cat-nip. They’re big and public. Name-makers look for flaws as opportunities.
The senate has already cooked a legislative intervention they call the “Honest Ads Act.” On November 1,’17 top executives from Alphabet, Facebook, and Twitter testified before members of the U.S. Senate. These high-profile hearings focused on Russian use of these three platforms to interfere in U.S. elections. “This is the national security challenge of the 21st. Century” commented Lindsey Graham(R-South Carolina.) Federal prosecutors are like lions. They test the water by targeting the slow and weak first. That means Twitter.
Wins in big cases launch political careers. Think Rudy Guiliani–fed prosecutor and multi-term NYC mayor. Amazon, Alphabet, and Facebook, sit in the government’s cross-hairs on a daily basis, as obvious targets but hyper-dangerous to attack. Depending on what these companies do, that balance could shift at any time.
Alphabet’s current anti-trust concerns lie in Europe. The EU has already sued and fined Alphabet $2.6b. They have also sued Apple for $15b. Alibaba operates solely at the whim of the PRC and it’s shifting political directives. All of the above rank as leading concerns to the ongoing success of these four massive companies, and thus our stake in each.
Fluid-violence. It’s Facebook leading, Twitter wandering, with Snap in back. New Facebook product targeting kids 6-12. Is that a cloud? Yes. Just wait.
Twitter’s serpentine growth path is known to all. They’ve been dead, reborn, marginal, and presidential. Single-handedly Donald Trump has strung Twitter in lights. For the first time in U.S. history a president has completely by-passed the Fifth column or Forth Estate–media. Stunning. He speaks unfiltered to the people. That alone is transformative. Truly, our major media outlets feel slighted. CNN and others speak angry over their loss of message control. The loss of powerful sway they have forever enjoyed is real. That is permanent. Name a single person not sick of specific media spin.
Twitter’s impact is revolutionary, yet their management and execution have been troubling. In our opinion, the leadership of a CEO cannot successfully be spread over two fledgling companies. Jack Dorsey is no exception. The fact that Dorsey accepted the top post in two new companies simultaneously seems questionable, at best. Sub-atomic particles are the only thing in nature capable of occupying two places at one time. That’s quantum mechanics not management. Company leadership has been slow to act, and indecisive as a rule. 100 million users is not a large base among social networks. We see three possible outcomes: an on-going marginal business, a Yahoo-style dismemberment, or acquisition. But then, reading clouds is like reading tea leaves.
Thanks for reading Keep looking.
Images sourced from Pixabay.