By Rick Lear, Lear Investment Management
Use Me by Bill Withers
Bill Withers
The legendary singer-songwriter Bill Withers recently passed away. The Rock and Roll Hall of Famer and Grammy Award winner was best known for songs like “Lean on Me,” “Ain’t No Sunshine,” and “Lovely Day.” However, one of my all-time favorite tunes is “Use Me.” The song’s funky baseline and soulful lyrics combine into a magical, musical cocktail that not only provides insight into our personal relationships, but also our investment relationships.
Withers reminds the listener that it is okay to feel the blues. The beauty in his gift to the world lies in the hope found in troubling times. There can be pleasure in pain, and sometimes it takes a journey through sorrow to understand the glory of the good times, to understand the path out of bad times is the most precious.
Like life, investing has ups and downs. Part of being an investor is the ability to control emotions in good times (greed) and bad times (fear). Fear in investing is usually attributed to lack of knowledge. Our goal this week, and every week, is to empower the audience with knowledge. In this Song of the Week (“SOTW”) we use technology stocks as example to discuss the emotions of investing.
Technology stocks have been “used” in the past decade to drive growth in a portfolio and increase wealth. As Withers said, “Talkin’ ‘bout you usin’ people, it all depends on what you do.” As an investor, it is important to understand your role in the relationship - you have a choice as to how you react. If you use a tech stock during the good times, are you going to turn your back at the first sign of bad times or can you pause to assess the long-term play?
Even in the financial train wreck of 2020, the QQQ (ETF representing the NASDAQ) is up 22% YTD. After a strong four-week run of positive returns, the QQQ declined for the week of July 20. With the one- week decline came the familiar calls for the end of the tech stock’s decade-long rally. It always amazes me that some are surprised when stocks go down for a short period of time. Don’t those investors know that the market ebbs and flows? Declines are okay and a part of the process.
If tech stocks were people, they would feel the same way the character in the song feels. Investors use and abuse tech stocks for increasing their wealth and then complain the moment they go down. The call for the demise of technology stocks continues and can be heard almost daily. It is true; the stocks trade at a higher valuation than the overall stock market, but the growth of revenue in the middle of a global pandemic may justify the higher valuations.
In addition to the periodic abuse delivered to tech stocks by media, the government has also joined the party. This week, four CEOs of large tech firms were called to “virtually” testify on Capitol Hill. The reason? The companies are too big and are raising anti-trust concerns.
These successful companies started small. I worked in Silicon Valley in the 90s when Google was raising venture capital funding. In fact, I attended a Google pitch meeting when the company was looking to raise its first round of financing. In 1999, Google raised its first round of funding of $25 million, garnering a valuation of $75 million. Today, the market capitalization of the company is $1 trillion. So, yes, Google has grown into a large organization, which now requires a new level of regulation and oversight.
However, respect should be paid to this growth as the success has fueled the U.S. economy. In fact, Google’s recent economic impact study shows that in 2019 the company had “provided $385 billion of economic activity for more than 1.4 million American businesses, nonprofits, publishers, creators, and developers.” Additionally, the combined revenue of APPL, GOOG, AMZN, FB and MSFT was over $1 trillion in 2019. The GDP of Canada was $1.7 trillion, so the aforementioned companies make up more than half of the developed country’s GDP?
In addition to providing wealth through appreciating stocks and driving our economy, the technology and services provided by these companies serve as the backbone of our modern world. This has been especially true during the pandemic.
You get me in a crowd of high-class people And then you act real rude to me
If you’ve been complaining about your tech stocks, take a moment to imagine this recent global shutdown without Amazon. Amazon created an ecosystem where you can say what you want and have the item delivered to your door the next day.
Further, imagine life without your iPhone or without software, or apps, or search engines. Instead of calling for their downfall, we should celebrate these companies for keeping us sane during insane times, and perhaps we should stop abusing them.
We understand the tech stocks have had a great run. Further, we encourage innovation and understand the companies are large and could hurt competition, but we just ask for a little respect for the technology stocks and companies that have driven this country’s economy and stock market.
Technology has advanced us to a better, more connected world. We believe a little grace should be allowed to the leaders of these corporations that have given us so much. There is always room for improvement, and we do not like monopolies, but “I wanna spread the news” that technology will continue to enhance our world, so be mindful of your relationship with it.
Rick Lear is the Founder and Chief Investment Officer of Lear Investment Management. Lear is an investment firm founded in 2015 with focus on generating equity returns with less than equity risk.
Lear Investment Management Who We Are video: https://www.youtube.com/watch?v=9uV4RpVN_RA
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