Last year I wrote my article on innovative investing for 2020 and the new decade, just before the pandemic went into full swing. I’ve generally kept my investment philosophy: investing in growth and technological developments despite short term volatility, rather than investing strictly based on fundamentals.
I began my investing journey like many people – in 2017 with studying Warren Buffet (and his mentor Benjamin Graham) and began wanting to follow in his footsteps as a value investor. I’ve since largely abandoned fundamental analysis as a core driver when it comes to investing – I believe that the investment climate is shifting to technology companies that can grow exponentially. That’s not to say I’ve abandoned math or statistics (I’m a big statistics guy when it comes to options trading); however, it is difficult to measure exponential growth as opposed to the more linear growth investment value models that Buffett succeeded within his investments in companies like Coca Cola and Bank of America. Buffett is the greatest investor alive, but even he has had to adapt to technology (nearly 50% of his portfolio now is Apple). [1]
As I said in 2020, I follow the investment philosophy of Cathie Wood from Ark Invest. In 2020 I discussed four main categories:
Electric Vehicles (Tesla)
Sustainable Foods (BYND and lab-grown cultures)
Esports and Gaming (Streaming and Game creation, specifically)
Genomics / Bioengineering (Editas, CRISPR)
I still believe these four industries have massive potential. So instead of revising them, in this article I will be adding 3 more general themes of investments to this growing list of innovation drivers for the new decade. These are not the 3 best investments themes, but they are the 3 that I personally have felt a genuine impact and interest in for 2021.
- Esports & Gaming (particularly in the MetaVerse)
- Frictionless Transactions (Electronic Payments, Crypto)
- Gig Economy
Video Gaming in the MetaVerse
In 2020 I discussed the growth of video gaming itself through content creation and streaming. My parent’s generation had no video games – and spent their childhood outdoors. My childhood was a mix of playing basketball and running around the park with my friends but also playing online video games. I will likely expect a larger number of childhoods in the following generations involving video games. Covid also likely caused a large increase in online gaming, given how many of us were stuck indoors. “The global video game market size was valued at USD 151.06 billion in 2019 and is expected to grow at a Compound Annual Growth Rate (CAGR) of 12.9% from 2020 to 2027.” [2].
A nearly 13% compounded annual growth rate is astronomical in the long term. To put it in comparison, the stock market on average historically grows at a 7-10% annual rate. The social media growth rate since 2015 is an average of 12.5% year-over-year, declining to 9.2% last year [3]. So just as fast as people hopped on Instagram and Facebook the past few years, we’re expecting the same rate at which people will be playing Fortnite and League of Legends.
The next major phase of video games development itself is the development of the MetaVerse. I am fascinated with the idea of transcending the physical world into a virtual reality that synthesizes both video gaming and physical reality. In the MetaVerse, instead of controlling a superhero character in a fantasy world, you are the character that can fly, run really fast, jump high, and wield two swords. Just a the Nintendo Wii offered Wii Sports games where you had to actively move to play sports like boxing (one remote in each hand to simulate two boxing gloves), the MetaVerse will be a more complex, developed, and aesthetically pleasing combination of video games, with virtual reality, augmented reality, and physical reality.
Meta (Formerly Facebook) recently announced a haptic glove prototype where you can physically feel objects in the immersive virtual reality through air pockets [4]. How fascinating is that? Remember the fascination we had when 4D movies first came out? Imagine a game where you can slay dragons and explore an aesthetically appealing fantasy world with my online friends, being able to physically feel the objects (of course, without any of the physical risk), all the while staying physically “active,” would be extremely enticing. We might eventually have pro gamers that look like athletes who spend hours training in ESports by slaying monsters in immersive virtual realities.
Of course, we never know how quickly the MetaVerse will develop – but I don’t believe it is overhyped. Short term volatility will certainly be rampant. But I believe this is a theme that will make large impact on the gaming space.
Some stocks to follow in this industry:
Meta (formerly Facebook): $FB
Tencent: $TCEHY. Largest video game publisher (Owner of Epic Games, Fortnite, Riot).
Roblox: $RBLX (Online game platform for developing virtual worlds)
Nvidia: $NVDA (Gaming chips and AI MetaVerse development)
Frictionless Transactions through E-Payments
When I studied and interned in Shanghai in 2018 I was fascinated with the quite literally 100% utilization rate of electronic transactions through QR codes. I can’t remember a time where there wasn’t a QR code for me to scan to pay for something. Mobile payments were seamless, with QR codes on taxis, restaurants, convenience stores, to even homeless people [5]. I found Chinese restaurants much more efficiently run than Western models. You don’t need to wait for your server to give you a menu or take your order – everything can be done through a scan of the QR code on the table. Once you’re finished with your meal, just pay through your phone and get up and leave. I’ve started noticing some restaurants in Western countries begin to adopt these models – albeit at a relatively slower rate. I’m sure the relevant urgency that Covid-19 surely ushered in. But China’s been adopting QR codes faster than any other country the last decade and made transacting payments one of the most seamless I’ve ever seen – ever more so than Singapore (which I expect will be the first country to abolish cash payments entirely).
On that note, other POS companies in America are trying to accomplish the same ease of transactions. Square is probably the most well known in terms of commercial, while PayPal has been around for online transactions since the early 2000s. PayPal is also the owner of Venmo, which along with Cash App, are the two most used peer-to-peer payment systems.
Cash is still a large part of many economies. But it will be very likely that we will shift to a predominantly cashless society once the technology adoption is there. From things like Credit Cards, we have shifted to not even needing a physical card and instead of paying with your mobile phone with Google Pay and Apple Wallet. In China, they use apps like WeChat Pay and AliPay by scanning QR codes. And of course, I would have to mention cryptocurrencies, which originally Bitcoin was conceived as a primary goal to revolutionize peer-to-peer transactions without a third party.
Some stocks to follow in this space:
Square $SQ (Point-of-sales and payment systems; investments in digital currencies)
Tencent $TCEHY (WeChat Pay in China)
Alibaba $BABA (AliPay in China)
PayPal $PYPL (Online payments, Venmo for P2P)
Gig Economy
The gig economy is vast and diverse. Its benefits include supplemental income and ease of access (you are your own employer, no need to go through the entire hiring process). The cons are also prevalent, such as lack of unionization, protection, employer benefits, and such. Overall, I think the gig economy is beneficial and puts the power in the hands of the people.
The gig economy includes things such as:
- Asset sharing (house & car rentals; AirBnB)
- Transportation (Uber and food delivery)
- Professional services (Upwork, online tutoring)
- Goods & Commission services (Etsy, Freelancers)
Freelance artists have well understood the notion of self-marketing to sell artwork and commissions online. Etsy is the front runner for a marketplace for handmade goods, artwork, and the likes. Instead of contacting art agencies, you contact the artists directly.
Then the revolutionary idea of creating platforms for peer-to-peer transactions transcended just artwork. What if you could hire your neighbour to drive you around or deliver your food from McDonald’s? Or renting someone’s condo instead of booking a hotel? (Airbnb)
The gig economy is such a diverse economy. And I love interacting in the gig economy because it creates a community of peer-to-peer transactions (facilitated by online payments!). When I visited Tokyo in 2019 with my sister, we stayed at an Airbnb. One of my favourite experiences was a ramen food tour that we found on Airbnb experiences. It was so simple, cheap, and removed the third-party of a “tour company.” It really felt like we were just meeting a friend who took us around Tokyo to secret hidden ramen spots.
Etsy has some of the coolest artwork and fanart made. My sister personally sells on Etsy and I’ve seen how cool of a community people can create on these platforms.
The gig economy is a place for unique discoveries and relies heavily on customer reviews. Uber has been known to be very harsh on drivers with a low review. Airbnb is the same. With the gig economy, there’s such a large selection of competition. People are held accountable because people are their own bosses. If McDonald’s has a dirty store location, people are still going to visit that McDonald’s. If an Airbnb has terrible reviews, it’s very easy to book another location. This forces everyone in the gig economy to produce high-quality work & services.
Some stocks to follow in the gig economy:
Airbnb ($ABNB)
Etsy ($ETSY)
Uber ($UBER)
To just put a quick disclaimer. The stocks I personally am invested in and have high hopes for are the following:
MetaVerse: $NVDA
Online Payments: $TCEHY
Gig economy: $ETSY
Sources:
[1] https://www.investopedia.com/articles/investing/022816/top-5-positions-warren-buffetts-portfolio.asp
[2] https://www.grandviewresearch.com/industry-analysis/video-game-market
[3] https://backlinko.com/social-media-users
[5] https://researchinprogresses.com/2018/07/13/chinas-new-four-great-innovations/
This is not financial advice. All opinions are my own. Information in this article is not academic and should not be taken as evidence otherwise. The article may be inaccurate and may be updated. I may have a financial stake in assets discussed in the article.
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