Hey Guys! It’s been about 3 months since I’ve been able to jump on here to blog. Sometimes life gets in the way, but I finally found some inspiration to write. The market has been choppy over the last 3 months, with falling interest rates, the US-China trade war, and presidential “impeachment” talks all negatively affecting the market. The market has been flat over the last 20 months, and it’s looking for resolution. I’m hoping prices break materially lower (I’d like to see a 20% drop in the market), so I can scoop up more shares of my favorite companies on sale.
I figured I’d give you all some investment themes that you can invest in today that should perform well for you over the next 10 years. I’ll also post some charts of a few stocks within the themes to show you how well they’ve performed over the last 10 years. I’m putting a lot of information into this post, so I will divide it up in 3 separate parts to make it more digestible. I hope you find some value in this series of posts!
1. Big Tech
Big Tech are the companies that provide the products that we use on a daily basis. Many of these products are things that we couldn’t live without. Big Tech stocks have been the biggest winners over the last decade, and I see no reason why they will slow down now. As our lives become increasingly digital, these companies are at the center of how we live, interact with each other, and conduct business. These companies make up 20-30% of my portfolio. This is how much I believe in them. You’ve got to add these companies as foundations for your portfolio, before you start adding the other themes. The companies that I’d like highlight within this group include Facebook (FB), Google (GOOG), Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL).
Facebook (FB) a best of breed social networking company which is benefiting from the secular tailwinds provided from online advertising. Facebook owns Facebook, Instagram, Messenger, and WhatsApp. They get their revenue from advertisers who like to use Facebook’s platform to advertise their products. How many times have you seen targeted ads when using Instagram? Happens to me all the time. As I’ve said elsewhere in this blog, don’t just login to Facebook/Instagram to connect with your friends. Participate in the wealth creation taking place by owning the stock. Facebook became publicly traded in 2012. If you invested $10,000 back then (@$38.23/share), your investment would now be worth $46,612. I own this stock personally, and Nick Jr. does as well.
Google (GOOG) is also best of breed in online advertising. In fact, it didn’t have any competition until Facebook came around. We all use Google in some way, every single day. Whether it’s Google Search, Google Maps, Waze, YouTube, Android Phones, or Google Home….we have to use their products to find the information we need. Advertisers place targeted ads on Google’s platform as well, and this is how the company largely makes their money. The two growth areas that I’m excited about with the company is Google Cloud and Waymo. Google Cloud allows enterprises to let their data storage and computing power to be managed by Google. Waymo is a Google division that is focusing on developing self-driving technology for cars. Waymo is FAR FAR ahead of anyone else in the space (Tesla, Apple, Uber, General Motors, etc.) and I think the company will make a lot of money in the next 5-10 years as this technology matures. Google is the third biggest position in all of my portfolios, largely because I believe Waymo will be huge. If you invested $10,000 in Google 10 years ago (@$236.07/share), your investment would now be worth $52,262. I own this stock personally, and Nick Jr. does as well.
Amazon (AMZN) is another big tech company that we simply can’t live without. How many of your friends, colleagues, and coworkers use Amazon Prime? I’d venture to say it’s plenty. Amazon is the reason why the physical retail stores are currently being destroyed. Sears went out of business recently, JC Penny is on it’s last legs, Toys R Us went bankrupt, and malls are empty around America. Why is this? It’s because people are buying their products off of Amazon. Amazon undercuts its retail competitors with it’s pricing, and uses their superior logistics network to get your items to you faster than FedEx or UPS could. They are truly the best company in America (currently). Amazon also has products within the home that keep you contributing to their bottom line. Amazon owns Prime Video, Alexa Devices, Whole Foods, and the Ring Doorbell. Although all of these products/services are great, they are not the biggest revenue contributor to Amazon. Amazon has Amazon Web Services (AWS), which is a service that provides on-demand cloud computing platforms to individuals, companies, and governments, on a metered pay-as-you-go basis. It is another cloud platform (similar to Google) that companies around the world pay Amazon to store and process their data. Profits generated from AWS allows Amazon to lower prices on services like Amazon Prime and Retail products sold on Amazon. This, in turn, makes people shop on Amazon (because of all the great deals!) and hurts other retail stores (ultimately putting them out of business). Amazon is the second biggest position in all of my portfolios. If you invested $10,000 in Amazon 10 years ago (@$78.87/share), your investment would now be worth $220,849. I own this stock personally, and Nick Jr. does as well.
Microsoft (MSFT) is yet another product that is used every single day by mostly everyone who uses a computer. If you’ve got a computer, chances are that you have the Windows operating system. Microsoft generates revenue by developing, licensing, and supporting a wide range of software products, by offering an array of services, including cloud-based services to consumers and businesses, by designing, manufacturing, and selling devices that integrate with its cloud-based services, and by delivering relevant online advertising to a global audience. Microsoft is also the owner of LinkedIn (acquired back 2016). If you use PowerPoint, Excel, or Word, you should consider owning stock of Microsoft. If you play X-Box, you should consider owning stock of Microsoft. The most impressive business of the company is its cloud computing business (called Azure). Similar to Amazon, enterprises across the world are using Azure to migrate their data and computing to Microsoft’s more secure cloud platform. Look for this part of the business to continue driving the stock higher. If you invested $10,000 in Microsoft 10 years ago (@$25.26/share), your investment would now be worth $52,802. I own this stock personally. Nick Jr. does not (yet).
Apple (AAPL) is another no-brainer stock to own. Everyone is hooked to an apple product in one way or another (phone, watch, iPad, AppleTV, Mac, etc.). We all know the iPhone story by now. The iPhone today, is actually a flat to declining part of Apple’s revenues. The iPhone market is clearly saturated. I don’t know how much more you can add to a phone to make it more useful. Everything added from this point (with the exception of 5G capability) is an incremental upgrade. The fastest part of the company today is Wearables (Apple Watch) and Services. Apple Watch shipments grew almost 50% year over year from 2018 to 2019. At ~$400/watch, the margins are pretty high on it compared to the phone. Apple’s Services revenue grew 13% year over year from 2018 to 2019. Included in Services is that pesky $2.99 that you don’t even know you’re paying monthly to store all your data on the cloud. AppleTV will soon be contributing money to the Services part of the company, with the $4.99/month offering for streaming content. Apple is easily the biggest position I have in my portfolios. It makes up almost 15% of my net worth. I started buying Apple around $60/share, and I don’t plan to sell a single share. I still think the company is cheap and should be valued like a software company instead of a hardware company. This makes the company worth around $350/share. If you invested $10,000 in Apple 10 years ago (@$27.21/share), your investment would now be worth $80,521. I own this stock personally, and Nick Jr. does as well.
2. Financial Tech (aka Fin-Tech)
Financial Tech stocks include companies that are directly involved with how we transact money. As we race ahead towards a cashless society, these companies implement technology to make the movement of money easier. These stocks have been HUGE winners over the last decade. Looking back on it, these are no brainers! We swipe a card every-single-day, multiple times a day. We need to own the stocks that make this possible. The companies that I’d like highlight within this cohort include Visa (V), MasterCard (MA), Paypal (PYPL), American Express (AXP), and Square (SQ). Other groups in this space worth checking out include Global Payments (GPN), FleetCor Technologies (FLT), and Fiserv (FIS).
We all see the Visa logo on our credit cards, but how exactly do they make money? There are three main ways that Visa and Mastercard make their money. The first category is service revenue (also known as swipe fees). Every time you swipe your credit card at a point-of-sale terminal, Visa or Mastercard or whoever is backing your card gets a small cut of whatever that revenue is (typically ~1%). They also get what’s called data processing revenue, which is a small, fixed amount that they get for things like actually transferring the money from one place to another, providing settlement data to a merchant, things like that. Then, there’s also what’s called international revenues, which are, if your credit card charges you a foreign exchange fee, or something to that effect. Any time that a credit card is used outside of its main area, you get a nice, additional, international revenue stream, if it has to deal with currency exchanges or convenience fees, those sorts of things. All of these things make Visa and MasterCard extremely profitable, and the stock price has reflected this. If you invested $10,000 in Visa 10 years ago (@$17.59/share), your investment would now be worth $99,556. I own this stock personally. Nick Jr. does not (yet).
The description for Visa above holds true for MasterCard as well. If you invested $10,000 in MasterCard 10 years ago (@$22.36/share), your investment would now be worth $121,748. I own this stock personally. Nick Jr. does not (yet).
Paypal is a company that operates a worldwide online payment system that supports digital money transfers and serves as a payment processor for online vendors. Paypal also owns the peer to peer payment app Venmo. Venmo competes directly with Cash-App for peer to peer payments. Paypal became publicly traded in 2015. If you invested $10,000 in Paypal back then (@$34.69/share), your investment would now be worth $29,778. I own this stock personally, and Nick Jr. does as well.
Square is a mobile payment company that offers several products to make transactions easier for merchants and consumers. Most notably, Square owns “Cash-App”, which is something I use a lot to send/receive money. When something become a verb, you might want to own the stock (“Just cash-app it”, or “Google it”). Square competes directly with Paypal (Cash-App competes with Venmo). I believe somebody will acquire Square at some point. Facebook comes to mind. Square became publicly traded in 2015. If you invested $10,000 in Square back then (@$12.85/share) , your investment would now be worth $47,330. I own this stock personally, and Nick Jr. does as well.
The description for Visa above holds true for American Express as well If you invested $10,000 in American Express 10 years ago (@$32.49/share), your investment would now be worth $36,605. I don’t own this stock personally (yet), and Nick Jr. doesn’t as well (yet).
3. Big Box and Off-Price Retail
“Big Box” retail companies that I like to invest in are those that can compete with Amazon’s aggressive online strategies. Retail companies who have a successful omni-channel (phyical stores, online presence, in-store pickup, etc.) sales strategy tend to be able to compete well in today’s retail climate. Off-Price retails are being highlighted because millennials tend to look for the “best deals” when shopping for things. You see, we are different from our parents. We don’t really care about oversized homes, oversized cars, and overpriced clothes. We are just looking for value, at a price that we are willing to pay. We don’t brag about how much we paid for something, we brag about how much we saved during our purchase. For Big Box retail stocks, I’ll highlight Wal-Mart (WMT), Target (TGT), and Home Depot (HD). For Off-Price retail stocks, I’ll highlight TJ Maxx (TJX), Five Below (FIVE), and Burlington (BURL). Other stocks worth checking out in these spaces include Lowe’s (LOW), Ollie’s (OLLI), Ross Stores (ROST), Kohl’s (KSS), Dollar Tree (DLTR), and Dollar General (DG).
Wal-Mart was a great investment from 1980 until 2000. From 2000-2015 it was basically flat around $55. Imagine how tough that would be to hold your investment the entire time. I probably would have sold to be honest. Wal-Mart was forced to make E-Commerce investments in 2015, due to Amazon’s surge. They have implemented free two day shipping, and you don’t have a membership fee like (Amazon Prime members). They also have grown their grocery presence, and are putting pressure on your Kroger’s of the world. They should continue to perform well if they continue to invest in their E-Commerce strategies. If you invested $10,000 in Wal-Mart 10 years ago (@$51.86/share), your investment would now be worth $22,840. I own this stock personally. Nick Jr. does not (yet).
Similar story for Target. It was a great investment from 1980 until 2007. From 2007 through this year it was basically flat around $60. Target has also invested in its E-Commerce platform, and now has a digital presence that customers love. I personally use their free shipping and in-store pickup options pretty often. If you invested $10,000 in Target 10 years ago (@$46.02/share), your investment would now be worth $23,059. I own this stock personally. Nick Jr. does not (yet).
Home Depot is one of those companies that cannot be “Amazon-ed”. You’re not going to buy wood and screws online. It’s just not feasible. They also only have one competitor in Lowe’s. With new home construction picking up, and many people interested in rehabbing old homes and flipping them….this is a great company to invest in. When you visit home depot, you’ll notice that their in-store technology is superior to most other companies. They also don’t have few (if any) check out lines with employees. Technology allows them to mostly do self check out. This saves $$$ for the company because they don’t have to pay somebody to do this. They have/are investing heavily in their technology. If you invested $10,000 in Home Depot 10 years ago (@$27.50/share), your investment would now be worth $83,585. I own this stock personally. Nick Jr. does not (yet).
HomeGoods is the one of the reasons why TJ Maxx has performed so well. People my age like the value that they can get at stores like these. If you invested $10,000 in TJ Maxx 10 years ago (@$8.77/share), your investment would now be worth $62,519. I don’t own this stock (yet). Nick Jr. does not (yet).
I’ve never stepped foot in this store, but I know they sell cheap stuff. I also have seen a few of them being built around Atlanta. The stock definitely reflects the success this company has had. Five Below became publicly traded back in 2012. If you invested $10,000 in back then (@$27.27/share), your investment would now be worth $46,384. I own this stock personally. Nick Jr. does not (yet).
As a kid, I hated when my Mom dragged my brother and I into Burlington Coat Factory. The church clothes were horrible and the I hated their jackets. Every Saturday that we had to spend in Burlington was an awful experience. I had ZERO idea that Burlington would be killing it like it is. Look at that stock performance in just 6 years! I’ve haven’t been in the store since my childhood, and always thought it was a wasteland. This goes to show you how off price retail driving huge earnings for companies. This is the trend for millenials, who are now becoming millenial parents and shopping for their kids. Just, wow. Burlington became publicly traded back in 2013. If you invested $10,000 in back then (@$25.89/share), your investment would now be worth $76,898. I don’t own this stock (yet). Nick Jr. does not (yet).