Digital Delight: Market Rewards 21st Century Leaders

“We’re only at the very, very beginning of this next generation of computing and I think that every industry leader will be the ones that transforms first. I don’t care what industry you’re talking about.” — Kim Stevenson, CIO, INTEL

When I was just a young boy, Saturday morning was the best time of the week. Why? On that day, for each thirty minute period, there was a different cartoon show that showed up on television. My generation feasted on Scooby Doo, with intermittent learning briefs on ABC from “Conjunction Junction, What’s Your Function?” We learned about the Bill of Rights and even the Constitution in between taking in a little Bugs Bunny, the Tom and Jerry Show, or the Flintstones's. Of course, one of the wonderful shows you could lose yourself in was the Jetson’s. At the outset of every episode, you got a chance to see a preview of what the twenty first century really might look like. There would be the father of the family, George, flying around in his vehicle, along with his wife Judy and their kids. At the time, the idea of flying vehicles was just a vision that a young kid could imagine, but increasingly, digital technology looks like it may make it a reality. With driverless cars and drones dotting the current landscape, flying cars may be just around the corner. So why do I bring this up?

The current investment landscape has made the decision to reward companies who appear to be in the pole position in their industry, especially if the segment is based on digitization. Conversely, if ones and zeros are not favorable to the segment, well, currently you are in the doghouse in a big way. The best example of this is Tesla being rewarded with a market value of over a hundred billion dollars. It is more than the combined value of GM and Ford. Tesla sold a little under 350K cars last year, while GM and Ford each convinced over two million buyers to lay down their hard earned money for a vehicle. Tesla is all electric based, while GM and Ford are not. Tesla has just opened a plant in China, and has a different business model than GM and Ford. Its approach is to have its own dealership and control its supply chain. Orders are taken before a model is built, which is a different way of skinning the cat than the typical car manufacturer. Clearly, investors believe Tesla is (pardon the pun), in the driver’s seat, as it relates to capturing most of the market share as electric vehicles get adopted. What about the industry that might have the most to lose, that being oil producers?

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Disclosure: Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the ...

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