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Letter from a Portfolio Manager to his investors: Exponential changes in which to invest (Part III)

Dear investor,

There is no doubt that Technology is changing all sectors of the economy, creating and destroying businesses and wealth at a dizzying pace. The pandemic generated by Covid-19 has accelerated this process, resulting in technology companies that are making real fortunes while many others are not being able to adapt to these disruptions and face their new competitors. At the same time, while the high net worth 1% continues to increase their wealth, millions of people have lost their jobs.

A few years ago, traditional business models grew linearly without being threatened, but times have changed, and through technology, a business can grow exponentially (rather than linearly) in a shorter period of time than ever before.

This explains why companies like Uber or Snapchat have reached a valuation greater than 1 billion dollars in less than 3 years, something that a few years ago was unthinkable to achieve in such a short time.

To benefit from the disruptive changes that have only just begun and will generate exponential changes, we are building a portfolio made up of winning companies that are going to multiply your benefits over the next few years:

  • 5G: It is not simply going to be a generational change, the speed is going to be 100 times greater than with 4G, allowing, for example, autonomous vehicles to be connected to each other without delays or for a surgeon to carry out an operation with a robot. from another country. It is estimated that it will generate more than 12 billion dollars of wealth. 
  • Transportation of the future: The development of electric and autonomous vehicles is the trend towards where the automotive sector is heading. It is a gigantic industry (4 trillion dollars) with great growth expected in the coming years. This new generation of automobiles will help reduce the number of accidents, reduce pollution, save our time... In the US, most States are already changing legislation to adapt it to this new reality. Obviously it will be a progressive process until reaching full autonomy, but companies like Tesla or Waymo (owned by Google) are already testing their models. In addition, all the major automotive brands such as Daimler, Volkswagen or PSA are making a large investment so as not to be left behind in the transformation of the sector.
  • Artificial intelligence: Every day it is more integrated into all fields of our daily lives, leading us to a new generation of accelerated innovation. It allows you to discover, optimize, solve and accelerate any development. It is estimated that it may be a greater revolution than the technological boom that began in 1990, so no company that wants to have a future can be left behind in this section. 
  • Medical precision through biotechnology: It is an approach that has nothing to do with traditional medicine since it prevents and treats diseases taking into account the genes and particular characteristics of each person. Thanks to current technology, sequencing the genetic chain to identify if there is any DNA mutation is simpler and cheaper than ever, allowing the mutated DNA to be modified and treated definitively instead of having to undergo expensive treatments throughout the entire life. life. Treatments for diseases such as dwarfism, blindness or hemophilia are already close to being approved by the FDA after the more than encouraging results of the clinical phase. The market is not yet assessing the size and growth it will have in the coming years, so we are anticipating and positioning ourselves before others do. 
  • Technology Blockchain: It allows us to carry out transactions with infinite applications in a fast, secure and decentralized way, without the need for a third party. Until now, it has not been possible to bypass central banking authorities, so this represents a historic solution. It is very clear that we are still in a very early phase in its adoption: today, only between 100 and 150 million people own cryptocurrencies, which shows the enormous potential it presents among 7.7 billion inhabitants in the world. Of course, along the way we will have to endure market manipulations by Elon Musk (founder of Tesla) or the vagaries of China, among others. The high volatility of this emerging market is the price we have to pay in exchange for the enormous potential for profitability. Large American companies (Goldman Sachs, JP Morgan, Square, Mastercard, Paypal...) have been entering this market for some time now, buying cryptocurrencies directly or with related activities.

exponential changes to invest in

To analyze a possible investment it is essential to estimate the company valuation, since, even if you buy the best company in the world, if it is at excessive multiples or ratios, it will not be a good decision. It is essential to invest in a good business but one that is listed at an attractive valuation.

As I always insist, the quality of the manager is essential to beat the market. We have seen an enormous dispersion in stock market behavior according to sectors and companies, with some clearly remaining behind while others have grown exponentially. That is why the stock picking (stock selection) of the manager is decisive. 

To conclude, I would like to remind once again our principles to achieve the proposed objectives: long term and process, patience and discipline.

Without a doubt, since March 2020 we have all suffered in one way or another, but now we can say that the worst part has already passed and light can be seen in the future. I am aware of the difficulty of the times we live in, but we must overcome them. 

Everyone is responsible for their own actions, and you, my dear investor, by worrying about making the savings that cost you so much sweat and effort profitable, have made the best decision.


Dan Benbunan

Portfolio Manager

Head of Investments & Strategy at RBU

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