Investing Archives - Steve Sammartino

How to invest in technology

Posted on August 2, 2018August 2, 2018 by Steve Sammartino

One of the most common questions I get asked is, ‘What technology or companies should I invest in? You study technology everyday and spend time large companies, so you must have an opinion’. And you guessed it – I sure do. While I’m not an investment advisor, there are some interesting things which we can be sure of when it comes to investing and technology.

The hot technology of the day will always be overpriced. We can expect that hot tech stocks, and even raw materials that go into technology will attract attention and demand that push their prices up. While this may be justified based on future expectations, it often reduces the potential return on investment. We often see this in P/E ratios. For example, the P/E ratio of the S&P500 is currently 24.37 compared to a long term average of 15, due to the big tech stocks currently making up such a big portion of it. In fact, six stocks (Google, Amazon, Facebook, Microsoft, Netflix and Apple) make up 30% of the S&P500. Sure, some stocks continue to rise like these have – but how many of them did you pick to be as big as they are now back in 2005? When it comes to stocks, I take the Warren Buffett approach and invest in Indexed Funds – that way I get all the winners and none of the cost. You can listen to a podcast I did on this topic that explains it succinctly.

Focus on the beneficiaries of the technology. The way to do this is to scrutinise social and economic structures will change due to new technology. Structures which live a layer or two outside of the technology itself, yet stand to benefit significantly from it. One particular area which is both underpriced and about to benefit from a large technology shift is certain forms of real estate. Transport historically has had an big impact on how and where we live. As we enter an era of autonomous transport, it will be easier to live further afield from major cities, and commute either virtually or in your ‘rolling lounge room’ one or two days a week to the office. While Henry Ford facilitated the birth of suburbs through affordable cars, autonomous vehicles and the work from home revolution will invent exurbs – places of great beauty within two hours of a major city. Via technology, these places will have all the benefits of a major city, but the advantage of a tranquil and desirable natural landscape. It’s possible to buy large land tracts in Geelong (1 hour from Melbourne) for a little over the median house price in the suburbs.

Right now this opportunity is wide open a few years out from when new forms of transport will change everything. It’s this type of technology investing few people ever think about.

Steve.

The Wealth Equation

Posted on June 9, 2014 by Steve Sammartino

In terms of financial wealth there is an equation which determines the amount money people acquire over their lifetime. And while monetary wealth is only a small part of living a life of great wealth (I prefer the 12 enduring riches) it is certainly worth knowing this equation and applying it to our daily economics. In a modern society a financial existence is unavoidable, and so it make sense to keep tis equation in mind. So here is the Wealth Equation:

(Income – Expenses) x Investment = Wealth

When we look at it like this in such simple terms, it reveal the current path we are on in the most immediate way. We know if we are spending too much. We know if we are not investing at all or in great enough quantity. What’s interesting is that the first element in the equation ‘income’ is not nearly as important as the second two. When we invest in a startup we are sacrificing the size of first number to go big on the investment multiple. Higher risk and higher reward. There are also many examples of people who became rich with low incomes, frugal spending habits and consistent long term investing. It’s all a game of risk tolerance, time and desired reward. One thing for sure is that wealth is impossible when expenses are greater than income. The important thing to know is which path we are chasing before we being the journey.

The early money & the long money

Posted on May 21, 2014 by Steve Sammartino

When we hear about startups that have gone on to be huge successes the mind often gravitates to all those early investors. Those who had a seat at the table in the angel rounds, those who knew the founders and got in early enough to make some serious money. It’s a natural reaction when companies go on to reach the unicorn level. It is true that people who get in early always make more money. Late money often pays a premium as future expectations (when positive) are priced into the investment.

But there is actually a way to become an early investor even when you are late to the party. The way to do it, is to be a long investor.

If we invest long, then by default we arrive early.

When we invest in something for the long haul, we eventually become an early investor. Even if the investment vehicle was well established when we arrived and got involved. If we stay long enough the price becomes cheap through the dual benefits of inflation & compounding. Just ask your parents what price they bought their first house for and you’ll see the relationship between long and early investing. It also works for quality stocks too. While very few people indeed got to invest in Google before their IPO, those who bought the stock on the open market once the stock was publicly traded would have made more than 6 times their original investment in 10 years.

When we start to invest in 10 year plus timelines all manner of investments from property to index funds provide outsized returns. And while we may not be clever enough to invest in something that grows quickly, we can be smart enough to invest in something long enough for it to become early.

7 simple concepts

Posted on December 12, 2013 by Steve Sammartino

Had a few ideas in my mind for blog posts. But thought I’ll just soundbite them now and go deep later:

1. Selling Potatoes: Startup ideas are often far too clever. Often they represent what is technically possible, rather than what is technically needed. I keep coming back to the idea of selling potatoes. That is, selling something demand already exists for. If we do this, we can stop wasting resources trying to creating demand. Instead we can just do a better job connecting and serving the existential market. Buy for price X and sell for X2. I’m wondering why a ‘potato’ business is rarely considered by aspiring entrepreneurs. We ought resist the temptation to 3D print ceramic fur balls for imaginary cats.

2. Market Validation: Real market validation must be with strangers, not colleagues. If it’s an online business, then validation can’t be done in person. If it’s a physical business then validation can’t be done on line. We ought match the real world. Real market validation should involve money, and avoid surveys.

3. Size & Attitude: The bigger the company the harder it is to maintain a cool attitude. When companies go public, their DNA changes. It’s just a fact we ought accept. At this point founders don’t care, they’ve already made bank. When our favourite companies get big it is inevitable we will suffer from a little bit of startup nostalgia.

4. Business Model & Problem Solution: I often get pitched startups that have a great business model with no real human problem. Or a solution to a human problem which struggles to find a business model. Our chances of success increase dramatically when we have both. We should work hard on having both of these elements when conceiving our next startup.

5. Quiet Self Esteem: It is what we are doing when no one is actually looking that matters. The actions we take that only we will ever know about. This is what we should focus on.

6. Half Baked Ideas: These are the best ideas to play with in the short term. It means we are in the kitchen experimenting. It doesn’t mean we should try and sell these cookies at the market, but we should always throw a few new recipes in the oven.

7. What VC’s Really Invest In: Justifiable failure. They don’t aim to fail, but before they invest a dime they know they will get it wrong more than 9 times out of ten. They’ll never admit this, but they are only ever investing in what will sound like a good bet to their partners. So that when it does fail (and it will more than 90% of the time) it is justifiable to those who stumped up the money. Hence, when seeking capital all we need be is justifiably worth the risk.

What matters more?

Posted on November 22, 2012 by Steve Sammartino

Being involved in the startup scene, or any business environment, there is a constant pull between the forces of production. A pull for power and control. The desire for one party to feel as though they are the input that matters, the major resource of creating something cool, desired and valuable. The idea creator, versus the coder, versus the salesman, versus the marketer, versus the capital provider… they all have a unique and special relationship with the output that makes them rightly feel as though they are the input that really matters. The input that makes it all possible.

But here’s an allegory worth considering.

We plant the seed of a lemon tree. We place it in the soil. We ensure it’s in a place that will receive enough sunlight. We water it frequently. We give it mulch and fertilizer. We stake it for stability to avoid the strong winds from breaking it. We attend to it daily. We are patient. We hope it bears fruit… Actually, we are certain it will bear fruit. For this belief enables us to find the energy to keep attending to our investment.

So what is more important? The seed, the soil, the nutrients, the sun, the water or the attention? None of them.

Without all of it, there will be none of it.

Instead of making claims to being the catalyst of creation, we should be thankful that we are part of a rich eco-system. A system from which he output we can all benefit from.

Do it when nobody is looking

Posted on October 23, 2012 by Steve Sammartino

If we get up early when nobody is looking.

If we go to the gym when nobody is looking.

If we read the books when nobody is looking.

If we attend the night classes and seminars when nobody is looking.

If we tend the garden when nobody is looking.

If we save our income when nobody is looking.

If we build our prototype when nobody is looking.

If we knock on doors when nobody is looking

If we work hard when nobody is looking…

So long as ‘we’ are looking, is all that matters. If we do it for long enough, eventually the yield from silent and lonely work appears for others to see, and most often, they wonder ‘when’ we did it.

Stay true vs the pivot

Posted on June 12, 2012 by Steve Sammartino

I bumped into friend who recently had a successful exit to a tech start up. One thing that I have really looked onto with envy is his ability to throw the old model out and start a fresh. In fact, he did it more frequently and with more haste than most people I know. if it wasn’t working he moved on to an entirely new idea, or made a quick pivot onto the sticky good parts of the concept.

Turns out this process has worked for him.

I’ve been more of a stay the course kind of guy. This comes from my general long term philosophy on when it comes both investing and how to live life. I’ve recently wondered how much this has held me back in startup land – while acknowledging it has worked very well for me financially. But what I’m starting to realise now is the difference between pivoting from an idea as opposed to pivoting the process. And that I can remain true to my ethics so long as I don’t confuse the former with the latter.

The course is the process, the pivot is the direction.