Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 273

Investing in global disruption, four years on

When Loftus Peak first began taking investor funds four years ago, there was a perception that smartphones and Google searches meant the world was hooked up and the big disruption money had already been made in the sharemarket, so further pickings would be slim.

But that is not the way it went. Facebook closed above US$38 a share on its first day of listing in 2013, halved thereafter, and then went up 10 times to more than US$200 on the back of the company’s successful shift to mobile (after a panic that the company could not make the leap from the desktop).

Markets struggle with long horizons

Markets react to visibility and can struggle to ascribe value beyond a two-year horizon. The sheer size of some of the disruptive themes might help understand the dilemma markets face in correctly valuing the affected companies; that is, all companies.

There are secular trends that will not reach their addressable market size in a single quarter but will keep expanding faster than GDP for years to come. For example, one of the strangest valuation anomalies was Alibaba, which investors thought was fully valued based on its hold on the Chinese e-commerce market. That market is already bigger than the US, is growing faster and has several years before it hits maturity, as the chart below shows. The stock has doubled since listing.

These big trends - such as energy as a technology (not a fuel), networks, connected devices (sometimes called the internet of things) and mega-data - will play out over decades. Single-period valuation methodologies such as price-to-earnings are too inexact, but it is a statistical certainty that 10-year forecasts will be wrong, too.

What has become clear is that such longer-term thinking when combined with other key metrics provides 'less wrong' valuation parameters compared with concentrating the investment horizon to one or two years, which can lead to a game of valuation catch-up. For example, there are serious problems in the world of central processor unit (CPU) chips. You shouldn’t be reading this here first, but Gordon Moore’s law that the number of transistors on a chip doubles every 18 months, is now breaking down.

It isn’t the CPU that will make computers go faster, it is graphics processor units and the like. They will not just double the speed, their advent into the data centre will mean an over 10-fold hike. Moore’s law drove disruption, but it is not fit for purpose from here. It will be different architectures that make processing speeds faster, thus increasing the pace of change.

Intel itself has acknowledged this, stating in 2015 that the pace of advancement has slowed. Brian Krzanich, the former CEO of Intel, announced: “Our cadence today is closer to two and a half years than two.”

Greg Yeric, chip designer at rival ARM, says:

“As Moore’s law slows down, we are being forced to make tough choices between the three key metrics of power, performance and cost. Not all end-users will be best served by one particular answer.”

This thematic will not play out in one year. It has already taken half a decade and is only halfway through.

Investing in global megatrends

There is an interesting line between being a disruption investor relative to that of a technology investor, meaning that it is more important to understand Moore’s law, not because it leads to smaller chips but because of what new business models arise as a consequence.

The chart below shows the growth of smartphones, a direct result of Moore’s law, but also their relationship to retail ecommerce (as a proportion of all retail), a disruptive business that was not necessarily foreseeable.

The relationship between retail e-commerce and smartphone penetration

Copyright © 2017 The Nielsen Company

It's not only about increasing processing speeds

It is the same with 5G. The technology itself may not be investable, but the changed business models that arise from it may be. For example, all the fancy processor power rolled out in the past 50 years could not even cope with a YouTube cat video until broadband speeds – meaning money in fibre and cell towers – caught up on a national and international scale. If self-driving cars become ubiquitous, it will be because there is 5G processing power, with the attendant massive real time data-transfer rates, to help steer them safely.

Meanwhile, Amazon has built a web services company that is at least as valuable as its US retail business and is now close to having an unassailable lead in voice, with the stock up five times in four years.

Voice is the next battleground in search, and both Google and Apple are behind Amazon in its execution here. We think about how this will impact business models on a multi-year horizon. And it isn’t because of the machine learning tools that drive voice, but the business implications of having an Alexa device in your home organising your shopping.

And so it is with Netflix. The company is not just an entertainment service, its model threatens to upend networks and pay-TV as we know them, globally. The fact that there are no real barriers to entry other than capital, for Hollywood film studios to create competitors to Netflix, has not stopped them from completely missing the point about the company and its role as a cable-TV killer.

Disney and Comcast were beating each other over the head to double down on old media by trying to buy 21st Century Fox for more than US$60 billion – a bid in which Disney won, at a cost of US$71.3 billion – presumably on the principle that scale will solve bad per unit economics, but it won’t.

What they should be spending that money on is great content, which is what’s really keeping Netflix’s share price moving. AT&T sort of gets it with the acquisition of Time Warner but is going to wind up so leveraged it will not have the additional resources to bring the fight to Netflix, content-wise.

There are other developments across sectors as diverse as energy, finance, robotics and transport. Four years after we started in this company, we believe there is still return to be had from the sharemarket, provided we continue to focus on the important trends and keep an eye on valuation. This remains our daily focus.

 

Alex Pollak is Chief Executive, CIO and Founder of, and Anshu Sharma is Portfolio Manager at, Loftus Peak. This article is general information and does not consider the circumstances of any individual.

 

RELATED ARTICLES

Are expectations for the Magnificent Seven too high?

TV - the end of the world as we know it?

Changing landscape of US large and mid caps

banner

Most viewed in recent weeks

Retirement is a risky business for most people

While encouraging people to draw down on their accumulated wealth in retirement might be good public policy, several million retirees disagree because they are purposefully conserving that capital. It’s time for a different approach.

The perfect portfolio for the next decade

This examines the performance of key asset classes and sub-sectors in 2024 and over longer timeframes, and the lessons that can be drawn for constructing an investment portfolio for the next decade.

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

The challenges with building a dividend portfolio

Getting regular, growing income from stocks is tougher with the dividend yield on the ASX nearing 25-year lows. Here are some conventional and not-so-conventional ideas for investors wanting to build a dividend portfolio.

How much do you need to retire?

Australians are used to hearing dire warnings that they don't have enough saved for a comfortable retirement. Yet most people need to save a lot less than you might think — as long as they meet an important condition.

Welcome to Firstlinks Edition 594 with weekend update

It’s well documented that many retirees draw down the minimum amount required and die with much of their super balances untouched. This explores the reasons why and some potential solutions to address the issue.

  • 16 January 2025

Latest Updates

Investment strategies

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

9 ways to fix Australia's housing crisis

Decades of policy failure have induced a fall in housing affordability. Unless painful changes are made, an underclass will emerge in a society that is supposed to boast the one of the world's highest standards of living.

Shares

Australia: why the chase for even higher dividend yields?

Australia boasts one of the world's highest dividend yielding sharemarkets, providing substantial benefits to investors and retirees. Despite this, individuals often stretch for even more yield, to their detriment.

Shares

MIGA – Make Income Great Again

The Australian sharemarket seems to be rewarding a number of unprofitable companies on the promise of future riches. Yet profits and cashflows still matter, as a recent case study of Domino's Pizza shows.

Shares

Mapping future US market returns

Exceptional returns from the US sharemarket over the past decade have driven by sales growth, margin expansion, rising valuations, and dividends. Predicting future returns requires careful consideration of these factors.

Shares

Read this before you go all in on US equities

US equities rule global markets, but history is littered with examples of markets that seemed invincible — until they weren’t. Diversification will be key for investor portfolios going forwards.

Property

What impact would scrapping stamp duty have on housing?

Increasing house prices pose challenges for housing affordability. This investigates the impact of stamp duty on the property market, and how removing the tax could help address several key issues.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.