A message from Mike: 10 years of market disruption

Wednesday 7 August, 2019

A message from Mike: 10 years of market disruption

Our JUNO KiwiSaver Scheme has celebrated its first birthday and we are really proud of how far it has come and how it performed in its first year. For more details on how it is tracking, refer to Paul’s JUNO KiwiSaver update.

Strong performance

It was a cracking month for our Australasian funds, Emerging and Dividend stood out; both up over 5% during July. The Growth and Growth 2 funds also performed strongly. 

Fund updates 

This month we are updating the status of our Australasian funds and lowering the withdrawal time-frame for some of our international products. We look forward to providing you with more information on this over the next few weeks. 

Fortunes are made and lost

This month I spoke to Liam Dann about some of the best-performing investments since the start of the bull run in 2009. They say fortunes are made and lost on the stock market and ten years gives ample opportunity to test this theory. Having analysed NZX and US S&P 500 performance data, I can confirm this definitely holds true.

Stocks with 16,200% return

It should come as no surprise the best performers are companies like Netflix, Amazon, A2 Milk and XERO, with A2 going from 9c to $17, providing a staggering 16,200% return.
If you picked any of these companies and held them, it would be like winning the lottery. “Real F&*k You money” as they say on the TV series Billions. 

The best industries over that time have been Tech, Tourism, Healthcare and Defence. The worst; Utilities and Oil & Gas. 

The dogs such as American Airlines and SKY TV have seen their business model disrupted and challenged. In fact American Airlines, disrupted by competition with keener pricing, even went bankrupt in November 2011. It only exited after merging with US Airways, creating a larger network and the ability to offer more competitive pricing on more routes. The merged entity turning profitable in 2014). 

As an investor, when you see a newcomer starting to disrupt your favourite stock - as Netflix did to Sky – it’s time to hit the exits and buy the disruptor. Forget the dividend.

Hunting for disruptors

However, how do you pick the next XERO or Amazon? 

The first thing is not to look for a XERO or Amazon copy-cat. If you want a 100 bagger, you will need to hunt for disruptors not ‘me toos’. Companies disrupting traditional industries or companies creating brand-new industries. Preferably, those with a first-mover advantage. 

Of course, early trends are hard to spot and, as any angel investor will tell you, the odds are probably 100/1. 

So what can the rest of us do, because we can’t all have amazing predictive powers? Essentially, every few months (it doesn’t need to be more frequent than that) test for new trends, new emerging industries and products which have suddenly become must haves. It’s more simple than you think. You don’t need to be first to trend, either. You might not make 100x but you have a good chance of a 10x and let’s face it, that’s  pretty rare too.

"If you want a 100 bagger, you will need to hunt for disruptors not ‘me toos’. Companies disrupting traditional industries or companies creating brand-new industries."

Trust the growth 

The only downside is you will have to close your eyes to the valuation and trust growth will be exponential. If you get stuck worrying about value you will miss these winners. When to sell? Either before a recession or when they lose their competitive advantage.

Recent buy examples of when products moved to must haves but stock prices still had significant upside would be Apple in 2009 with the iPhone, XERO with cloud accounting software 2010, Netflix  with streaming in 2016, AfterPay with buy now pay later in 2018, and many, many more.

So what’s trending at the moment?

What are the current product must haves. I’ll discuss those in next month’s newsletter. 

As always, thank you for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, mike@piefunds.co.nz.

Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser. Pie Funds is the issuer of the Pie Funds Management Scheme. For access to the PDSs, please click here.