How Small Investors Can Beat Wall Street
Look For The Disrupters
If you can outsmart the Hedge Funds and Financial Experts, think again. The small investors are ill-equipped to outperform Wall Street. The wolves of Wall Street have several financial resources at their fingertips. Wall Street traders have armies of young college grads that read all the quarterly financial reports and 10-K published by every Fortune 500 to Russell 2000 corporation. The Wall Street wizards have many financial resources, like Wall Street Journal, MorningStar, Bloomberg, CNBC, Reuters, and Forbes, to name a few. But the secret is the proprietary financial algorithms that their trading computers can execute to take advantage of minor discrepancies in stock prices between markets. Also, many Hedge funds have configured trade bots to execute quickly any news item that comes across Twitter or Reuters before the average investor has time to read, digest, and perform the trade on the same news item. Wall Street bigwigs laser on significant gains in the short term. So how can the Average Joe Investor win?
Easy, look long term. Beyond the quarter, beyond the year. There lies the secret advantage that small investors have over Wall Street. This is where the playing field favors the small investor. Significant gains are always made the earlier you invest in the company.
Look for Disruptors in Any Sector.
Tesla is a fine example of a Disruptor in the auto industry. The Electric vehicle (EV) is cheaper to build than an internal combustion engine (ICE). Battery technology and manufacturing innovations are the backbones of electric cars' success. This gives Electric vehicle manufacturers like Tesla and BYD a massive advantage over the legacy automakers. Even if legacy automakers decide to give up on internal combustion engines, the amount of time and money required to build new Electric vehicle manufacturing lines will place them five to seven years behind Tesla and billions of dollars in additional debt. The electric vehicle is designed around the battery and the electric motor. One cannot take any legacy automaker's car frame and chassis and expect to adapt the electric motor and battery. Trying to jimmy-rig an electric motor and a large battery to a combustion engine's car frame is trying to fit a square block in a round hole. It will never do; it will never work.
Refitting present manufacturing facilities to make electric vehicles would be costly and inefficient for legacy automakers. Tesla revolutionized the manufacturing plant by utilizing more automation. i.e., robots, and uses space above the factory floor in the production line. Tesla is in the continuous redesign and improvement mode. Automotive production changes are frequently done. The 2023 Tesla Model made in March may differ from those produced in January and will differ from the EV cars produced in September. Innovation is a daily event, not an annual event at Tesla. Tesla innovated by reducing the number of parts used in making its electric vehicles, using mega-press in producing single-piece rear and front chassis, and improving battery types. Look for companies that are leaders and innovators in their industry.
Dexcom, Omnipod, and Vertex Pharmaceuticals are great examples of innovators in the field of Diabetes. Indeed, medical innovation has accelerated in the last twenty years. For example, look at mRNA vaccine technology that developed and mass-produced the Covid 19 vaccine within a year.
Dexcom has a continuous glucose monitor that is attached to the skin. The sensor measures the glucose every five minutes and transmits the readings to the individual and up to five others. Imagine, as a parent having the ability to monitor your child's blood sugar during the night. And if the blood sugar dives to a critically low level, your phone alarms and warns you that your child is in danger. Being a parent of a diabetic child, the continuous glucose monitor has saved my child's life on several occasions. As a parent, I will gladly pay any price for this device to keep my child alive.
Omnipod is a compact insulin pump. The Omnipod device is the size of a garage door opener and is attached to the skin. A small transmitter regulates the insulin pump and facilitates better glucose management. The longer the blood glucose levels stay within the normal range, the better the long-term results. Several medical studies have validated that tighter glucose management reduces morbidity and mortality rates for patients with Diabetes.
Vertex Pharmaceuticals is on the verge of finding a cure for diabetes. Vertex Pharmaceutical has had a few successes in its clinical trials, but the successes were proof of concept. Many individuals with Type I diabetes were implanted with stem cells programmed to differentiate into pancreatic islet cells. Pancreatic islet cells are responsible for the body's insulin production. In early clinical trials, stem cells required immunosuppressive drugs to prevent the patient's tendency to reject these foreign cells. Vertex has developed an innovative stem cell delivery system in the ongoing clinical trial that eliminates immunotherapy. Are they close to a cure? Maybe. But many questions need to be answered. Are there any side effects? How long do they remain insulin-free? Will patients require immunosuppressive drugs as time goes on? The downside of immunosuppressive therapy is that it can increase your risk for cancer and opportunistic infections (TB, CMV, Herpes, fungal, and salmonella are the most common). Only time will tell.
And finally, there is AI. This may be the 600 lb gorilla in the technology revolution. This may be THE disruptor of the 21st Century. What are the companies that profit from AI? It's anyone's guess. Is it Microsoft with its significant investment bet in Chat GPT? Can Google's Bard stave off Microsoft's push for SEO supremacy? Is Tesla's Full Self-Driving program also an AI program that can quickly adapt to other fields? Is Facebook's recent improvements in data analytics help them with AI? Does Amazon have an advantage over its competitors with its cloud supremacy? Where does CPU king AMD fit in?
How do the chip manufacturers like Nvidia, ASML Holdings, and Taiwan Semiconductor play a part in the AI race? Will Nvidia win the AI gold rush with its mega GPU-laden server, H100 Tensor Core GPU? Is Nvidia the modern-day Levi Strauss? Levi Strauss made more money than most gold miners during the California Gold Rush by producing tents and blue jeans for the prospectors.
Warren Buffett, the Oracle of Omaha, constantly preaches to look around you for investment ideas. He also advises investing only in companies you understand. So do your research and understand the companies you decide to invest in inside and out.
