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The Next FANGs


Gregmal
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https://www.cnbc.com/2020/08/01/portfolio-manager-flags-next-fang-stocks-amid-record-inflows.html

 

ARK has been dynamite, and without getting into them specifically, as they seem to be controversial for a few reasons, I thought the topic was worth discussing, you know, being forward looking and all.

 

What are some candidates/businesses that have the "next FANG" potential.

 

 

Ive long owned and agree with CRSP. Traded NVTA quite a bit but have questions about it s longer term economic advantages in a low margin biz. SQ seems like a PYPL wannabe as does ROKU with NFLX.

 

Other candidates I think could be private companies like Ripple, Synthego or SpaceX. Public wise, Ive seen tons of talk about Inseego. Tradedesk also comes up quite a bit. A way, way, way down the line candidate may be something like Atomera. GAN also has some interesting things going for it, as has been detailed in that thread.

 

Thought this would be a fun topic and fits with the higher risk/super high reward type of investing that may suite the current environment. Picking up nickels and dimes right now just doesnt seem worthwhile.

 

 

Disclosure, since mentioning several small and less liquid names, for the sake of transparency....I own CRSP, PYPL, ATOM and ARKG. I have private investments in Synthego and Ripple(the company not the coin).

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Good topic. Tencent comes to mind.

 

I think Netflix is a bit of a different animal than FAAMG. Next Netflix? Spotify.

 

As far as smaller (like 1-10 billion market cap) companies that could get as big as US "big tech" I have no idea. From the names you mentioned, it seems you're thinking more along these lines than 150b companies going to 1 trillion. I guess the smaller ones make you more money.

 

Uber, Adyen, Shopify could get a lot larger.

 

Walmart market cap is 372 billion. McDonalds is 157 billion. Maybe some executive wants to do an Amazon and start productizing internal components of their non-tech companies as software or infrastructure.

 

Probably a bunch of chinese/indian tech cos that I'm ignorant of and would be worth mentioning.

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Agree on Spotify. Shopify too.

 

Thinking mainly in terms of long runway. Multiple new avenues of application for their "product" and/or modifying their product to suite new revenue streams. Controversial valuation. IE Amazon the bookstore to Amazon the everything store. Netflix the DVD rental biz to Netflix the one stop shop for tv. Saleforce perhaps too.

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Guest cherzeca

good but hard topic.  what companies will disrupt the disrupters?

 

I think the new wave of EV companies are interesting, especially those that are attacking tsla...I don't give much credence to legacy ICE companies, but maybe something like NIO.  Rivian if it goes public.

 

synthetic biology is REALLY hard.  various crispr companies, but how to analyze? I would wait for emergence of market leaders

 

the follow ons that will attack peloton...there will be a bunch...see https://www.barrons.com/articles/these-stocks-are-special-heres-why-51598036348?mod=past_editions (zwift)

 

slack has a long runway.  zoom as well.  all expensive

 

Match may very well grow into something so embedded into the culture that we will all be thinking, how did I miss that?

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Disrupting the "disrupters" is harder and harder by the day. FANG companies will buy anyone with promising tech/business that could possibly threaten their success. The big get bigger.

 

There needs to be a new business that has been neglected previously (like Tesla did with electric cars). Maybe something in the blockchain space like Ripple mentioned above. Maybe Coinbase when they go public if they diversify within blockchain. I like what OSTK has done so far with an AMZN-esque e-commerce business that is developing into something more.

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I believe we see a new FANG coming up every 5 years on average. Just look at Tik Tok. Instagram might have been a new FANG too, if Facebook  wouldn’t have been able to buy it out. These platforms are not as durable as people think and popularity can be fleeting. I think GOOG and AMZN have built up various moats and may be more durable.

 

Regarding ATOM, From my experience, Material tech companies have a hard time monetizing. I don’t think these are likely to become new Fangs.

 

CRSP could be good, but with biotechs, it’s seems to me that generally the value of platforms is generally overestimated. It all depends on clinical efficacy and selecting the right target in the end, the technology or platform to do so can always get licensed in.

 

In any case, Biotech or even medial technologies are heavily regulated by the FDA and don’t enjoy the fast scaling that internet business can show. On the positive side, the profit potential is enormous, so a lot of wealth can be created, but I think it’s difficult to get into the $100B league.

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I am not sure the next FAANG will be from technology. If you look 10 years from 2000 many of the invincible tech names in the top 10 firms were gone.  Why?  Due to intense competition reducing share/profits.  IMO there are rare profit pools that can last more than 10 years & to continue to grow into valuations requires entering new markets where incumbents know your game.  IMO the international opportunities will disappoint also as online media & commerce will tilt towards local champions more easily taxed & can provide jobs for local governments.

 

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Good point, the next FAANG is very likely an unknown today. Not some incremental addition to an existing stock.

 

"Ninety-four of the surviving firms are still in the S&P 500 index, 26 are publicly traded companies not in the index, and five are in bankruptcy proceedings."

 

There is huge survivor bias. However I think an investor can do well even with moderate growth , mid-large cap winners. No need to swing for the fences to win.

Unless CBs partner with crypto, I see crypto as having little to no future.

Peter Thiel's Zero to One is a good book that deals with this issue. The next great company is not some copy, iteration, or copy-cat of another. It is a truly revolutionary and new idea at the time.

Microsoft went nowhere for almost 15 years around 2001.

 

There is actually a lot of mergers in corporate history. if that deal is all cash, you have to buy the buyer or you're out. Again, how many of the FAANGs came about via merger? I would say none originally. They all had a powerful unique organic business to start.

 

 

 

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Speaking of FANGs, Apple is now worth more than the entire Russell 2000...combined. Has 1 company ever had more than the entire market cap of the russell 2000 before?

 

And almost as much as the FTSE 100

 

"If Apple's stock rises 7%, it will surpass the FTSE in market capitalization."

 

https://markets.businessinsider.com/news/stocks/apple-2-trillion-rally-market-capitalization-entire-uk-stock-market-2020-8-1029524339

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Good point, the next FAANG is very likely an unknown today. Not some incremental addition to an existing stock.

 

"Ninety-four of the surviving firms are still in the S&P 500 index, 26 are publicly traded companies not in the index, and five are in bankruptcy proceedings."

 

There is huge survivor bias. However I think an investor can do well even with moderate growth , mid-large cap winners. No need to swing for the fences to win.

Unless CBs partner with crypto, I see crypto as having little to no future.

Peter Thiel's Zero to One is a good book that deals with this issue. The next great company is not some copy, iteration, or copy-cat of another. It is a truly revolutionary and new idea at the time.

Microsoft went nowhere for almost 15 years around 2001.

 

There is actually a lot of mergers in corporate history. if that deal is all cash, you have to buy the buyer or you're out. Again, how many of the FAANGs came about via merger? I would say none originally. They all had a powerful unique organic business to start.

 

 

 

 

Definitely some good observations. This reasoning is largely why I kind of disagree with the ARK fella on Square and Roku which are basically just modifications/copy cats of existing "rule breakers" so to speak. Invitae definitely could be this type of company, but they haven't come close to demonstrating how they ever make money and their CEO is a little bit of a liar IMO.

 

Being able to expand into pretty much any sector is a big reason many of the tech companies have the crazy forward looking valuations. It took me a while with CRM to realize that it wasn't just a software/tech company but if executed properly, basically a royalty/toll collector on everyone mid size and up business out there.

 

I think the key is to find a business the has huge optionality, vibrant leadership, and a bit of a first mover advantage. Maybe this falls more into the Motley Fool "rule breaker" than "next FANG" category...I think every one of the 5 "next FANGs" according to ARK is actually a rule breaker as well...but the other key to finding these I suppose is never selling stocks because even something like Netflix or MSFT...5 years ago or so looked very different than it does today from a "global domination" perspective. Same with Apple. Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon".

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Guest cherzeca

"Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon"."

 

I knew a guy who bought into QCOM pre-IPO and has made an outrageous amount of money for his family (he has passed) simply because he never fell for the temptation of taking profits.  everyone needs a system, and taking profits religiously (and cutting losers quickly) is a pretty good system.  but if you want to make some big bucks on a stock (of course at the risk of losing it all on it) you need to sit tight.  (seems like I heard that from some old fella often quoted on this board).  he never sold QCOM because he didn't need the profits to pay for his family's lifestyle at any point of time, but also because he viewed it as a "part of the family" (so the whole "don't get emotionally involved with stocks" is not always wise advice).  and with his passing the family got the step up in basis for income tax purposes...huge home run 

 

 

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"Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon"."

 

I knew a guy who bought into QCOM pre-IPO and has made an outrageous amount of money for his family (he has passed) simply because he never fell for the temptation of taking profits.  everyone needs a system, and taking profits religiously (and cutting losers quickly) is a pretty good system.  but if you want to make some big bucks on a stock (of course at the risk of losing it all on it) you need to sit tight.  (seems like I heard that from some old fella often quoted on this board).  he never sold QCOM because he didn't need the profits to pay for his family's lifestyle at any point of time, but also because he viewed it as a "part of the family" (so the whole "don't get emotionally involved with stocks" is not always wise advice).  and with his passing the family got the step up in basis for income tax purposes...huge home run

 

That's pretty much nonsense. But it does make for a nice story when the stock end up going up. See I knew a guy who felt the exact same way about Nortel. He didn't make an outrageous amount for his family.

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I expect one or two of the workspace technology companies to become the next FANG, e.g., TEAM, SLACK, ZOOM, etc. Some of these technologies will become as ubiquitious as MS office and every working person will be using them... Maybe some of them get consolidated or eventually get acquired by MSFT.

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Guest cherzeca

"Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon"."

 

I knew a guy who bought into QCOM pre-IPO and has made an outrageous amount of money for his family (he has passed) simply because he never fell for the temptation of taking profits.  everyone needs a system, and taking profits religiously (and cutting losers quickly) is a pretty good system.  but if you want to make some big bucks on a stock (of course at the risk of losing it all on it) you need to sit tight.  (seems like I heard that from some old fella often quoted on this board).  he never sold QCOM because he didn't need the profits to pay for his family's lifestyle at any point of time, but also because he viewed it as a "part of the family" (so the whole "don't get emotionally involved with stocks" is not always wise advice).  and with his passing the family got the step up in basis for income tax purposes...huge home run

 

That's pretty much nonsense. But it does make for a nice story when the stock end up going up. See I knew a guy who felt the exact same way about Nortel. He didn't make an outrageous amount for his family.

 

I guess there are winners and losers, right rb?  or is it nonsense to think you can be a winner....

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"Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon"."

 

I knew a guy who bought into QCOM pre-IPO and has made an outrageous amount of money for his family (he has passed) simply because he never fell for the temptation of taking profits.  everyone needs a system, and taking profits religiously (and cutting losers quickly) is a pretty good system.  but if you want to make some big bucks on a stock (of course at the risk of losing it all on it) you need to sit tight.  (seems like I heard that from some old fella often quoted on this board).  he never sold QCOM because he didn't need the profits to pay for his family's lifestyle at any point of time, but also because he viewed it as a "part of the family" (so the whole "don't get emotionally involved with stocks" is not always wise advice).  and with his passing the family got the step up in basis for income tax purposes...huge home run

 

That's pretty much nonsense. But it does make for a nice story when the stock end up going up. See I knew a guy who felt the exact same way about Nortel. He didn't make an outrageous amount for his family.

 

I guess there are winners and losers, right rb?  or is it nonsense to think you can be a winner....

 

There is also just simply being an "investor", allocating money you dont need, in an inconspicuous manner, and just letting it be. You can only lose what you put in, whereas you can often make many multiples of it. So all you'd have to do is a hit a double to make up for the occasional Nortel. Or, sometimes what Ill do, is after enough of an increase, you pull your original investment and then just let the rest ride.

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Guest cherzeca

"Everybody I know has owned and made money on AAPL over the years. And almost all of them lament selling it "too soon"."

 

I knew a guy who bought into QCOM pre-IPO and has made an outrageous amount of money for his family (he has passed) simply because he never fell for the temptation of taking profits.  everyone needs a system, and taking profits religiously (and cutting losers quickly) is a pretty good system.  but if you want to make some big bucks on a stock (of course at the risk of losing it all on it) you need to sit tight.  (seems like I heard that from some old fella often quoted on this board).  he never sold QCOM because he didn't need the profits to pay for his family's lifestyle at any point of time, but also because he viewed it as a "part of the family" (so the whole "don't get emotionally involved with stocks" is not always wise advice).  and with his passing the family got the step up in basis for income tax purposes...huge home run

 

That's pretty much nonsense. But it does make for a nice story when the stock end up going up. See I knew a guy who felt the exact same way about Nortel. He didn't make an outrageous amount for his family.

 

I guess there are winners and losers, right rb?  or is it nonsense to think you can be a winner....

 

There is also just simply being an "investor", allocating money you dont need, in an inconspicuous manner, and just letting it be. You can only lose what you put in, whereas you can often make many multiples of it. So all you'd have to do is a hit a double to make up for the occasional Nortel. Or, sometimes what Ill do, is after enough of an increase, you pull your original investment and then just let the rest ride.

 

of course.  but more to rb's nonsense.  my friend went to every CES convention in Vegas.  and before that, to every Sinatra concert there, but that is a different story.  he was a tech gadget geek, and went mostly for the love of the tech product roll outs...but he did discern patterns of investability amidst the tech pomp and circumstance, and he made at least one wise choice...something that he thought everything he liked seemed to depend upon.

 

but out of his love for tech gadgets he found an investment he also loved, for lack of a better word...Claude Shannon-like.  for most, an investment is wholly rational/analytic...for some very successful investors, it is too simple for rational exegesis. more a question of how could I not...?

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Greg,

 

Is it OK with you to widen up the topic a bit and post thoughts without actually mentioning names, thereby also adding to the topic a slightly different angle?

 

Absolutely. I think even inadvertently I realized the need for this when Casey posted on "the next FANGs". It can have different meanings or angles to look at depending on how you look at them. IE next already establishment large cap turning into mega T-cap. Simple a moat and long runway. A revolutionary or disruptive technology.

 

In its simplest form I'd suppose the FANG premise is merely a gargantuan wealthy creating machine. This can be influenced by many different things, events, or circumstances, some perhaps we've seen before, others maybe we have yet to see. 

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I have heard and directly seen stories enormous wealth creating and distractions with stocks. I worked for a company that was later out by JDSU. Some folks I know who were just average hourly folks rode it all the way up and then down. Same with Nortel. A colleague I know worked for Lockheed and mentioned a guy who averaged doen into Lockheed stock when they got into trouble due to the Tristar (a commercial airplane ). He averaged all  the down and got a 100 Bagger and that was back in the late 90‘s.

 

I spent time on a message board in 2001 or so, where one poster went full bore Mirant (he thought it couldn’t fail) and he got wiped out when they declare bankruptcy. He later committed suicide supposedly.

 

I guess there all kind of stories out there. One thing I know is that staying in the game  is half the battle, at least. Index fund do ensure survival so that’s one of the reasons why they serve the vast majority quite well.

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Greg,

 

Is it OK with you to widen up the topic a bit and post thoughts without actually mentioning names, thereby also adding to the topic a slightly different angle?

 

Absolutely. I think even inadvertently I realized the need for this when Casey posted on "the next FANGs". It can have different meanings or angles to look at depending on how you look at them. IE next already establishment large cap turning into mega T-cap. Simple a moat and long runway. A revolutionary or disruptive technology.

 

In its simplest form I'd suppose the FANG premise is merely a gargantuan wealthy creating machine. This can be influenced by many different things, events, or circumstances, some perhaps we've seen before, others maybe we have yet to see. 

 

Thank you, Greg,

 

And btw, certainly an interesting topic!

 

My request about omitting names was based on that to make a killing on something like the FANGs of the future, to me personally, there are conditions that needs fulfilment in the first place:

 

1. One need to pinpoint the company before it IPOs [after which one buy it in the IPO]. Thus the "no names" request from me [, because you can't buy it right now, unless one have sufficient capital to participate privately in some VC adventure before that],

2. Likely, it requires certain specific professional skills to actually see the potential, the moat and the long runway [circle of competence], in reality only  possessed by few persons.

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I think (especially as John has described it) AirBNB probably fits these criteria. About to IPO, huge runway. I think post-covid people will still want to travel, and they have the best market position in the travel universe. Margins should expand dramatically as they continue to grow.

 

They will have to add pivot's to adjacent markets to get to FAANG size, but I think a 2-3 year double from IPO (assuming it comes in around the $25-30 B rumoured price) doesn't seem like a stretch.

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I think there is nothing wrong to shamelessly taking a page out of one the best investor out there when it comes to technology names and investigate those names further.

And no I don't mean Cathy Woods from ARK; although I have great respect about her. More on that later.

 

I speaking of Tesla' largest institutional shareholder.

Nope, I dont mean Ron Baron either. Although he is cool too.

 

I mean Baillie Gifford & Co. &  James Anderson.

 

Aside some of the main established FANG names that folks are familiar with, he has been a major investor in Tesla for a very long time and in a big way.

Other names that he has invested in are Spotify and a dutch semiconductor name called ASML Holding N.V.

 

I personally think Paypal has the scale & reach to become a FANG like powerhouse.

 

On Kathy Woods, one has to giver her credit for taking a stand on Tesla with her $4000 share price some years ago. Most analyst wont stick their neck out like that. Now she can be completely wrong or completely right, but unlike the typical Wall Street sell-side analysts, she took an stand. The rest of Wall Street plays the usual catch up game. Saw an interview with Adam Jonas on CNBC where he was trying to raise his target price close to the market price, as he kept inserting shims into his sum of parts to lift it. I mean really !

 

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ARK has done an incredible job of at least identifying some real stud stock picks.

 

Also agree on AirBNB. I regret not having pulled the trigger on a PP several years ago when some employee shares were up for grabs. Hopefully it goes public soon, while there is still a dark could over the sector and hopefully the public valuation.

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