Tech Letter Archives

Creative Cloud Seeks An Edge

Tech Letter

Tech stocks have been in a world of pain lately.

We never got the Santa Clause Rally of 2022 and I correctly predicted that.

There is still a boatload of uncertainty as we gaze into the 2023 crystal ball.

I am not sitting here telling everyone to bet the ranch on tech stocks right now because that would be irresponsible.

I will say that highly tactical investors will win out in the race to not get slammed by heightened volatility.

Remember some of the most epic moves take place in a bear market rally in the midst of a big correction.

What does that mean in simple terms?

Discovering great entry points to sell big rallies and buy the capitulating dips.

It’s not as easy as buying the dip and taking a nap anymore, and anybody who got body slammed by 2022 performance understands that.

The good news is that many tech firms are firing staff like it’s going out of fashion.

Wages are the most expensive part of running a tech company and Twitter’s Elon Musk firing 75% of the staff has offered a blueprint for firing everyone but the most essential workers.

The cheerleaders must find work elsewhere.

One cloud stock that does pretty well in not hiring the cheerleaders is Adobe (ADBE).

Adobe's array of applications is a tech mainstay for everyone from global enterprises to freelance designers.

It’s true that last year Adobe's share price suffered amid a larger tech stock sell-off, but there was nobody left unscathed as the macro factors brought the whole sector down.

First, it’s not ideal that Adobe spent $20 billion to buy the software design company Figma.

It’s damn expensive.

ADBE clearly didn’t get much bang for the buck and will need a quarter or two to digest the higher expenses and lack of bottom-line follow-through.

Additionally, Adobe's annual sales growth has been slowing over the past few years, and hawks point to this as a key reason to avoid the stock right now.

Adobe must still be looked at because it expanded revenue at 15% year over year in 2022 which is relatively positive for such a mature tech stock.

It shows that ADBE’s software is incredibly sticky for the end consumer.

ADBE’s 2022 earnings also expanded by 10% year over year in 2022, which I would call a victory as loss-making tech companies went out of business.

ADBE has also issued a sales forecast of 13% in 2023 highlighting its uncanny steady performance no matter how bad inflation is.

Many companies and artists simply cannot forego the usage of ADBE and that will keep ADBE in the mix for tech stocks to buy on the way up.

It’s hard to believe that wider macro factors will be worse in 2023 than in 2022.

Many of the strong balance sheet tech firms are hoping for a reversion to the mean type of share price bump.

I am not touting the beginning of 2023 as the seeds to a golden year of Silicon Valley, but trading nimbly in a strong cloud name like ADBE could represent overperformance if great entry points are located.

To be frank, it’s not as easy to make money in technology stocks as it used to be, but the money is still out there for investors to take.

That’s why it’s my job to guide traders and investors on this fascinating journey in tech stocks, as tech stocks are poised to benefit from fully priced Fed Funds interest rate increases.

Investors need to keep their eye out for ADBE.

December 30, 2022

Tech Letter

Mad Hedge Technology Letter
December 30, 2022
Fiat Lux

Featured Trade:

(BUYER BEWARE)
(TIKTOK)

Buyer Beware

Tech Letter

Sometimes the best way to become successful at investing in technology stocks is to avoid the black swan or the big disaster.

I hate to say it but investment risk has never been higher.

One question that keeps getting rehashed that I thought I might take time to address is the rise of the TikTok influencer-adviser.

According to a brief Google search, TikTok, known in China as Douyin, is a video-sharing social networking service owned by Chinese company ByteDance.

The social media platform is used to make a variety of short-form videos, from genres like dance, comedy, and education, that have a duration from three seconds to one minute.

Unfortunately, for serious retail investors lately, content has migrated into high-stakes themes like financial education and financial advising giving rise to content that is produced by video creators to get a piece of the financial industry.

Naturally, this has brought down the quality of the financial content on the internet to historic lows simply because most of the content is marginal at best.

These promulgators often preach about their status as “trading gurus” and often leverage the hype of digital currencies to claim they are fully invested in “crypto assets” and urge anyone reading to become one of their new “cult followers.”

They are also usually paid to market a “bulletproof” financial app or certain crypto asset to avid followers without properly disclosing that they are being paid for the advertisement.

This behavior is being encouraged by the TikTok algorithms which order this type of misleading content at the top of searches simply because it gets more hits being a click-bait type of content.

The more outlandish the videos become, gloating about get-rich-quick schemes and 1,000% daily returns, the higher up in the search queries they usually populate when filtered through TikTok algorithms.

These accounts are known as financial “influencers” and post 100s of such videos every month featuring fraudulent success or minimizing the difficulty of profiting through trading and a mix or mash of everything in between.

Even some proclaim to have unlocked the holy grail of trading and “guarantee” 100% returns or your money back.

Another speaking point they like to touch on is how video watchers can “also” afford wealthy lifestyles without having to work, at least in the traditional way.

To dumb down the travails of investing and trading to something easier than pouring a glass of water is a lie.

Many of these novice investors are duped into paying for exorbitant services that are nothing more than promotional buzz offering hyped-up marketing language as specific trading advice.

Unfortunately, US regulators have turned a blind eye to what is happening on this nefarious Chinese platform, and imitators are spawned daily and are certainly incentivized to do so.

While I must admit that regulating this type of behavior on TikTok is incredibly messy, to leave this unchecked will result in massive fraud for the little guy that I try to help.

The justification for ignoring these TikTok “influencers” is because there is even worse cybercrime taking place out there and the content these influencers are peddling is straddling the gray areas of the law.

But it’s not enough, and readers need to understand the heightened risks of diving feet first into these TikTok polar vortexes where you just get whipped around unknowingly.

Pre-emptively protect your portfolio by avoiding these TikTok trading gurus is the order of the day.

As we enter 2023, taking tabs of the fallout has been epic.

The TikTok crypto marketers were largely being sponsored by crypto exchange FTX.

They were peddling FTX’s own digital currency that was made out of thin air.

Anyone trading in this FTX in-house digital coin known as FTT lost most of their money as the CEO of FTX Sam Bankman-Fried was extradited back to the United States from the Bahamas for illegally using billions of dollars in customer deposits.

FTX’s FTT coin went from $40 at the beginning of 2022 to 80 cents on December 30, 2022 highlighting the dangers of listening to fake crypto “trading gurus” on TikTok pushing FTT coin like there is no tomorrow.

Stay vigilant and happy trading and remember, there is no free lunch in trading.

It’s hard work earning your crust of bread.

BUYER BEWARE

December 28, 2022

Tech Letter

Mad Hedge Technology Letter
December 28, 2022
Fiat Lux

Featured Trade:

(STICHED UP BY ITS OWN POOR DECISIONS)
(SFIX), (AMZN)

Stitched Up By Its Own Poor Decisions

Tech Letter

I don’t get Stich Fix (SFIX).

It’s not that they shouldn’t be a company - I’ve seen worse ideas cut up on the drawing board - but I don’t see how they will ever become successful.

They probably should have invested in Bitcoin before it blew up to $65,000 because that was the last savior before tech companies realized they couldn’t just roll over debt anymore.

SFX’s lack of competitive advantage is worrisome, and they haven’t done enough to differentiate themselves amongst competition.

For a company fighting for relevancy, they have made some boneheaded mistakes.

They recent hired a new CEO Elizabeth Spaulding with no apparel experience - she was only a consultant with Bain and has never run a company in her life.

For one, customers don’t receive a great sales price on the clothes. Unless keeping the entire box (5 items), they won't get a discount. They also won't find any coupons online for Stitch Fix.

For many tech companies that preach the freemium model, Stich Fix is asking customers to pay a premium for clothing upfront without proof of a brand premium, and I believe that is turning off a lot of potential customers.

A tech company with decelerating revenue for 6 straight quarters is a red flag.

If you are a bargain bin fanatic, the sight of SFIX’s service will turn you off.

Stitch Fix claims the average price of items is around $70, but that the items can cost anywhere between $20 and $400.

You can set price ranges for each category, but that doesn't mean your stylist will always follow those instructions.

Pigeonholing oneself as a luxury service but hoping to scale broadly and fast like a tech company is counterproductive.

Many Americans simply won’t pay up to $500 for a 5-piece set of clothing no matter who is styling it.

This sounds like a service for a computer programmer in San Francisco with a $200,000 annual salary--which isn’t a bad thing, but it will fail to scale.

Just as important, there is quite robust competition that undercuts SFIX such as Amazon (AMZN) Prime Wardrobe.

Amazon Prime Wardrobe is an exclusive program just for Prime members. This service gives users the chance to have chosen clothing items shipped to their home for them to try on before buying. The difference here is that the user selects the item which, for me at least, makes sense instead of SFIX blindly shipping clothes that aren’t ok’d. I just don’t think a “stylist” can get it right more than half the time. You only pay for what you keep and you have 7 days to make up your mind.

The biggest head scratcher is the $20 SFIX styling fee if you don't keep anything.

Seriously, what is that about?

If you hate their expert stylish decisions, you get blamed for it and pay $20 for nothing! Shouldn’t it be SFIX paying the user $20 for failed style sense?

And this is without even mentioning the pain of resending the clothes!

The inferior business model explains why the stock has gone from $120 fifteen months ago to under $3 per share today.

Don’t bet on a reversion to the mean trade as well, there are so many better stocks out there.

Quote of the Day - July 27, 2022

Tech Letter

“Our goal was never to create a better taxi.” – Said CEO of Lyft Logan Green

December 23, 2022

Tech Letter

Mad Hedge Technology Letter
December 23, 2022
Fiat Lux

Featured Trade:

(THE FUTURE IS HERE)
(NO CODE)

The Future is Here

Tech Letter

The future is here.

No code or low code will bring a raft of new innovative tech companies to market, and we are in the early innings of this transformative development.

What is no code?

No-code is an approach to designing and using applications that requires zero coding or knowledge of programming languages.

This type of software hits us at a perfect time when the home office is beginning to become ubiquitous.

The self-service movement that empowers business users will support the creation, manipulation, and employment of data-driven applications.

If we turn back the pages of history, companies needed an army of software programmers to develop even the measliest application.

That was then and this is now.

Fast forward to today and automated technology doesn’t only include cutting-edge industries like automotive cars, but also software on laptops that can be rejigged by individual entrepreneurs.

That’s right, one person with no coding experience will be able to design, develop, and offer a real-life application with meaningful business value without the help of expert programmers.

The research data backs up my thesis with research firms projecting a 23% increase in the global market for this type of technology.

During the pandemic, low-code/no-code tools saw steady growth due to their effectiveness in addressing some of tech’s most complicated challenges.

The essential need to digitize workflows and enhance customer and employee experiences will be a boost to the efficiency of commercial and operational teams.

No-code platforms have evolved from just facilitating mundane tasks to making it possible for a broader range of business employees to truly own their automation and build new software applications with no coding while increasing organizational capacity.

A few risks that larger companies might consider is that even for remote developers building new applications, governance is paramount.

IT staff will need to install guardrails in place and have those built into low-code/no-code platforms to maintain consistent levels of security across the organization.

Cybersecurity solutions need to be integrated into this workflow by training every employee at the organization on security behavior and using compartmentalization and limited access to prevent opportunities for mistakes.

Hard landings are hard to recover from and some can be crippling to the business model.

For no-code companies, harmonizing workflows is a key requirement for success.

In a low-code/no-code organization, departments should be able to work without silos and communicate freely across functions.

Elevated performance enabled by low-code/no-code tools will mean that the number of useful apps hurling towards the marketplace will be more and merrier than ever before.

Higher performance will no doubt usher in a new renaissance of efficiency and even better performance.

This also puts a 3 or even 4-day workweek squarely in play.

Many of the best tech minds in the world have supported the concept of working smarter instead of working harder.

A low code/no-code standard will allow for these achievements to take place.

The cratering of costs to start and run a tech firm is affected too.

Deploying startup capital to pay for other expenses will make it easier for successful incubation.

This will ultimately mean that this new type of tech company will need to embrace the fusion of IT and business staff, empowering them with composable applications to speed up the time to market for new solutions.

Low-code/no-code, APIs, and other tools are enabling companies to integrate new applications into their existing tech stack in a more seamless manner with a lift-and-shift approach vs a rip-and-replace.

At the entrepreneur level, individuals will be able to harness the technology to build $100 million companies with a snap of the fingers when it wasn’t possible to do it before.

This is finally a chance for the little guy to recapture their moxie in the vast and sometimes overwhelming business world.