Rudi’s View: GenAi, The Super-Megatrend, Part 1

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jun 19 2024

GenAi, The Super-Megatrend, Part One

"In times of change, learners inherit the earth, while the learned find themselves beautifully equipped to deal with a world that no longer exists."
[Reid Hoffman, co-founder of LinkedIn]

By Rudi Filapek-Vandyck, Editor

Every experienced investor knows it pays dividends to be sceptical when all around us are getting excited.

We only have to look back in history to find plenty of examples of temporary share market excitements that had investors scrambling to get on board, only to find themselves on top of a sinking barge not long after. Remember 3-D printing? BNPL? Cannabis?

The commodities sector offers multiple examples just about every single year; from rare earths, to nickel, graphite, lithium, and coal companies... the swing from Zero to Hero to Zero status is usually swift and brutal, and it won't be any different in the future.

None of these experiences negate the fact today's world is changing on a regular basis and some of the changes occurring leave a significant imprint on businesses and society at large.

For investors, the importance comes through separating Winners from Losers, as the distinction will ultimately become irrefutable, either inside the investment portfolio or on the ASX, for all to see.

For some, investing will always revolve around picking up the pieces after disaster strikes. The share market has a habit of pushing excitement too far ahead of fundamentals, and disappointment too low into the abyss. So, there's always a fresh investment case assuming things don't get a lot worse.

For others, long-term investing is about tapping into growth, and enjoying the rewards of a multi-year uptrend. These investors know success is closely linked with 'growth'. Growth pulls oxygen into the business and its share price. Without growth there are no long-lasting, sustainable rewards.

Over the past decade, investors looking for growth in the share market have gradually converged around the theme of Megatrends; societal changes that play out over extended periods of a decade or longer, creating Winners and Losers throughout the process.

For investors in growth, the importance seems obvious: better to own the Winners.

This doesn't mean others can afford the luxury of ignoring what is happening at the macro-level.

A blueprint from the past

Back in the year 2000, News Corp ((NWS)) shares represented 13% of the ASX200. More than BHP Group's ((BHP)) importance post abolition of the UK-listing. Today, News Corp draws most of its 'value' from the equity it still owns in online real estate portal REA Group ((REA)). Any moves in the share price are pretty much inconsequential for the index overall.

That pretty much sums it up for the local media sector generally. Online competitors REA Group, Car Group ((CAR)) and Seek ((SEK)) have only grown in size and importance over the past 24 years while their traditional brethren have shrunk and sunk deeper and deeper into the shadowy corners of the local bourse, where daily trading volumes evaporate and general investor interest dies.

Nine Entertainment ((NEC)), with a much deflated market cap of $2.2bn, is still part of the ASX100, but only until June 21st after which it will be relegated to the ASX200 and All-Ordinaries only.

In the world of institutional investors this means the once mighty Fairfax newspapers empire is about to become a 'small cap'. No surprise, market rumour has it private equity is running the ruler over a business that combines old and new media, with no longer any 'value' incorporated for the print and radio media assets.

Southern Cross Media Group ((SXL)) is no longer in any index. Seven West Media ((SVW)) and ARN Media ((A1N)) can only be found in the All-Ordinaries. Others have disappeared. Sure, there have been times when any of these share prices went up, but one would find it hard to locate an investor who uses "great return" and any of these names inside the same sentence.

In contrast, WiseTech Global ((WTC)), which runs a digital service assisting companies with organising their complicated logistics, will be added to the ASX50 after the close of trading on June 21. WiseTech shares only listed on the local bourse on 11 April 2016, a little over eight years ago.

The past decade has seen multiple Megatrends being identified by investors, ranging from businesses and consumers going digital, to cloud computing and the emergence of a middle-class consumer in Asia. In the slipstream of these major changes, new businesses have been created; not all have been successful.

Those that did prove themselves as a true Winner have generated truly copious rewards for loyal shareholders. Examples include Altium ((ALU)), Audinate Group ((AD8)), and Xero ((XRO)), as well as the aforementioned WiseTech Global, REA Group, and Car Group.

Among the conclusions that can be drawn from past experiences, it is those tectonic shifts don't move in a straight line, there will be interruptions and pauses; investors tend to become over-excited in the short term, while under-appreciating the potential further out; and there will always be plenty of 'pretenders;' and 'wannabes'.

Eventually, the true Winners will rise above the pack, but their status may not always be as apparent from the get go.

The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE