Innovative Investing for 2020 (and the new decade)

February 4th, 2020

The fact of the matter is, when you want to invest in truly innovative and industry-disruptive technology, you will most likely be drawn to companies with valuations that don’t necessarily make fundamental sense. Instead, we invest to change the world.

In the past year, we’ve seen Tesla (TSLA) stock dip to nearly $170/share in June 2019, to exploding now to $880/share as I write this. Yet, Tesla’s profits were higher a year ago, so the fundamental investment logic is entirely skewed and dependent on future promises of Tesla and Elon Musk.

Of course, I also wrote back in May 2019 that despite Tesla’s consistency in burning through cash and debt, that one day we would look back and laugh at anyone who was betting against Elon Musk.

So in terms of thematic investing, where we look at certain disruptive themes, we won’t be looking at the fundamentals at all, because frankly, they don’t convey much fundamental promise. Instead, I want to explore some of the important themes that are changing the way we live today – and how we will live in the next 5-10 years. I purposely left out AI / Machine learning, because that’s a no-surprise technology disruptor.

  1. Electric Vehicles
  2. Sustainable Foods
  3. Esports and Gaming
  4. Genomics / Bioengineering

ELECTRIC VEHICLES

The electric vehicle industry is being driven upwards by environmentally friendly demand, energy-efficient infrastructure, and improved innovation.

Of course, Tesla dominates this space – currently with 18% market share of the EV industry.

According to Ark Invest, Tesla (TSLA) has three key competitive advantages over all other EV competitors that makes even Tesla’s 2012 Model S more superior than today’s competition:

  1. Battery Optimization: Tesla makes their own batteries, optimizing them for vehicles and also lowering the cost significantly. When Elon Musk decided to use Lithium-ion batteries, traditionally used in phones and put them in a car, he took efficiency to the next level while the media criticized him for his mad-scientist ideas.
  2. Personal AI Chip: While other smart-vehicles will use an NVIDIA AI chip, Tesla has its own artificial intelligence chip and its 3+ years ahead of traditional AI chips because it is specifically optimized for automobiles rather than general-purpose.
  3. 14 Billion vs. 200 Million: The number of miles driven by Tesla auto-pilot compared to the next big competitor, Google’s Waymo. In the race to autonomous-driving, the companies with the most data will win in terms of rolling out efficient systems. The reason Tesla is far ahead in this category is that they continuously gather data from its customers. Google, not wanting the dangers of autonomous driving in the hands of customers and the potential backlash, has only gathered a small sample set through controlled testing. Watch out for a roll-out of autonomous vehicle taxi fleets.

SUSTAINABLE FOODS

On the trend of ESG (Environmentally, Socially, and Government) investing, sustainable foods and plant-alternatives is on the rise.

Veganism has more than quadrupled in the past 5-years alone, driven both by health and environmentally conscious consumers.

If we all went vegan, the world’s food-related emissions would drop by 70% by 2050 according to a recent report on food and climate in the journal Proceedings of National Academy of Sciences (PNAS).

The U.N. says that raising animals for food is “one of the top two or three most significant contributors to the most serious environmental problems, at every scale from local to global.” So if you really want to fight climate change, then consider a plant-based diet (or at least a few plant-based meals). [1]

Moral of the story? Cows fart a lot.

Beyond Meat (BYND), one of the leaders in plant-based meat alternatives is gaining more traction with creating more deals with companies like Subway, A&W, Burger King, Tim Hortons, McDonald’s, The Cheesecake Factory. No doubt Beyond Meat will be an option at every large restaurant chain soon.

Cell-cultured meat or laboratory-grown meat goes even further in terms of providing a sustainable meat-alternative.T biggest hurdles that scientists are facing right now is scale, cost, and social acceptance. Yet, once those hurdles are overcome, it’ll be exciting to see how this innovation will change the way the entire world eats.

ESPORTS AND GAMING

Gaming as an industry is larger than the global box office and music combined

Esports has become truly global. Games such as League of Legends, DOTA, CS: GO, Overwatch, and more recently Fortnite, are watched by hundreds of millions of people around the world. People both enjoy playing and watching other people play video games.

The League of Legends 2019 World Championships Finals had a peak viewership of 44 million viewers, an average of 21 million, and over 100 million unique viewers. That’s more viewers than the 2019 NBA Finals (20 million average).

The most successful independent YouTuber with over 100 million subscribers is Pewdiepie, who also pushed gaming interest significantly higher in the past decade, giving gaming-enthusiasts a community online.

There is more video-gaming content streamed and uploaded on YouTube than any other industry. Streaming revenue is heavily tilted towards Esports and gaming. More people watch gaming and ESports than Netflix, HBO, Hulu, and ESPN combined. Over 400 million, and projected to 600 million by 2022 [2]. Most of this viewership pie is outside of the US.

A few public stocks to watch will be

  • Tencent (TCEHY) which is the world’s largest gaming company which owns the two most popular games in the world: Riot Games (League of Legends), 40% of Epic Games (Fortnite).
  • Amazon (AZMN) which owns the largest streaming platform (Twitch)
  • Google (GOOG) for YouTube
  • Afreeca TV (KRX) for Korea’s streaming exposure

GENOMICS AND BIOENGINEERING

This industry will face a lot of backlash from compliance, regulatory health organizations, and general societal ethics.

But the power now to directly edit DNA sequencing and cure – not treat – certain illnesses is unprecedented in terms of innovation. And in the past 20-years, scientists are increasingly trying to reduce the cost of this process – which used to be billions of dollars – but still sitting at ranges of hundreds of thousands to millions of dollars.

Yet, when this medicine passes through the regulatory screening and safety checks, humanity will make giant leaps towards health and medicine.

This technology is still in its infancy – but in the future, once DNA sequencing is paired with artificial intelligence and machine learning, and millions of DNA data samples, then humanity will make big strides towards curing all genetic diseases.

We are in a rare moment in history where scientists have the power of life and death in their hands.

Some companies with US Patents in Gene-Editing to watch:

  • EDITAS (EDIT)
  • CRISPR (CRSP)
  • ILLUMINA (ILMN)

These 4 themes are just a few of the exciting technology-innovations in development. It will be exciting to see how quickly these industries advance, which companies come out ahead, and how much our lives change in this new decade.

If you want to grab a chance at investing in some of these innovative themes, I suggest you check out Ark Invest and their innovation funds. I believe Cathie Woods is a very intelligent woman with a knack for visionary companies, with a strong team of analysts that value innovation.

If you want to stay up to date on more financial markets news, be sure to subscribe to Down To Finance for updates on new posts.


Disclosure: As of February 4th, 2020, I own shares in Tesla and Ark Invest Funds. I own ETF’s that has some exposure to Amazon, Google, Tencent, and gene-editing companies. Information provided on Down To Finance should be taken as opinions and entertainment only, and not as professional financial advice.