Podcast 17th July 2015
Amazon, Netflix and Uber are some of the biggest value creators for shareholders in the recent times. The commonality among them is the fact that traditional concepts of profits, dividends and free cash flows is not in their DNA. These companies driven by vision of their founders are only investing for growth and by doing this they are either stifling traditional profit making companies or even destroying businesses that are unable to see the future.
The trend is shifting in the investing space. Money is going private rather than public as companies shun IPO’s. Private investors see growth rather than dividends and profits as the driver of returns and this drives innovation amongst entrepreneurs. Ultimately this trend could change the way investors look at public markets.
The word “Fundamentally Strong” has taken a new meaning in the world of investing. Fundamentally strong companies are no longer the ones that have strong balance sheets, generate free cash flows and pay out regular dividends to the shareholders. Such companies are seen as too mature for comfort and value creation stops at some stage. Amazon has swamped “Fundamentally Strong” Walmart in terms of value creation. Walmart market cap has declined 11% since 2000 while Amazon market cap has increased by 1380%.
New concepts of investing are emerging. Leverage is no longer taking on debt, leverage is the use of technology to drive growth. For every USD of debt than can drive growth, adoption of innovative practices will drive growth much faster. The more money is churned back into the business the stronger the growth is the mantra of the new age entrepreneurs. Shareholders are coming to accept this fact given the strong value that is created by the new age entrepreneurs.
The changing world of investments assumes significance for retirement investments. Retirement investments are seen as long term and traditionally investments were in a mix of asset classes and within that mix, equity investments were largely in so called fundamentally sound companies. Pension funds, insurance companies and mutual fund retirement schemes largely focused on profit making and dividend paying companies. Such kind of investments has completely backfired over the last fifteen years, making retirement corpuses suffer.
Business disruptions are causing changes to job profiles too. Jobs in companies affected by the new age are very much in doubt. Career growth in such companies may not happen at all. The new age companies are going in for younger and younger talent with fresh ideas that are not cluttered with experience. Hence it becomes vital for Retirement Investments to grow and for that to happen, mindsets have to change while investing.
Attend our Knowledge Workshop on Retirement Investments in a Fast Changing Dynamic World on the 4th of September 2015 at Sofitel BKC Mumbai. Please call Neelima at +919819770641 or log in to investorsareidiots.com to register. Thank you for listening in.