Dear Reader,
Welcome to our weekly mailbag edition ofThe Bleeding Edge.All week, you submitted your questions about the biggest trends in technology.
Today, I’ll do my best to answer them.
Before we turn to our questions today, though, I’d first like to remind readers about my Day One Summit happening next Wednesday, November 17, at 8 p.m. ET.
That night, I’ll launch my first service to help regular investors take part in early stage private deals… the most lucrative kind of investing there is.
As just one example, investors in Uber’s seed round would have turned a $100 investment into $496,500. $500 would have grown into $2.5 million. That’s the kind of transformational wealth that’s possible with these kinds of offerings.
With that said, investing in private companies is different than investing in public ones… which is why I’ll guide my readers through this process using my years of experience as an angel investor.
I’ve personally invested in more than 260 deals, which have brought me some truly incredible returns – up into the thousands of percent.
And the best part about this new service is that it will be open to anyone. No accredited investor status needed. No vast sums of capital are required. Like in the Uber example above, just a small investment can reap generational rewards.
I’m incredibly excited to reveal all the details on November 17 – including why I’m making this move right now.
If you’ve enjoyed my research in the past… and if you’re looking for a way to supercharge your investment returns… then please don’t miss this night.
Simply go right here to RSVP to attend. I hope to see you there.
Let’s begin with a question on why we should care about the metaverse:
Jeff, why should I care about this? I’m in my mid-’70s and like doing things in the real world. I can’t see where I would need or use the metaverse.
Is there an advantage to doing things in the metaverse rather than the real world? Will it help me with my golf swing, shop online, put gas in my car, or do my taxes for me? Please educate me because I’m ignorant.
– Skip P.
Hi, Skip, thanks for writing in. Since you’re readingThe Bleeding Edge and you already know about the metaverse, I know you’re not ignorant.
I’d bet you’re ahead of most people that you know. And I hope you live past 100 in good health… which is why you should care about this massive trend.
You and I don’t have to plan on spending a lot of time in a metaverse for us to care about it. But as investors who want to grow our wealth, we must be aware of it and understand how we can gain exposure to these kinds of explosive trends.
For new readers, the metaverse is a virtual world in which people can meet and interact with each other. There will be many metaverses, in fact. And with the help of augmented reality (AR) and virtual reality (VR) technology, many people will enjoy a completely immersive experience.
One day soon, we’ll be able to attend live concerts… play games… shop… own property… and do business within the metaverse. We won’t have to do that, of course. We can still do taxes in the real world. But if taxes are easier in a metaverse, I’d be all in.
And I’m confident that it will be very popular with many people. In fact, tens of millions of people already are participating in metaverses. First-generation metaverse company Roblox has more than 43 million daily users already.
But as you said, there will certainly be those of us who prefer to live in the real world… and forget the metaverse even exists.
So if we are among that group, why should we care?
Well, there are a few reasons. As investors, it’s always good to stay informed about new technology trends. This is how we achieve incredible gains – by identifying opportunities early, when most people don’t understand the potential.
For example, there’s an infamous story about the McKinsey consulting agency assessing the market for cell phones back in the early 1980s. At the time, portable phones were heavy, had pitiful battery life, cost a lot, and offered minimal coverage.
The agency reported to AT&T that the total market size at the turn of the century would be a mere 900,000 users. But it completely missed the bigger picture. The agency didn’t envision how the technology would improve and become a staple of many people’s lives.
McKinsey’s estimate was about 108 million short of the real total in 2000. And today, it’s estimated that 6.4 billion people worldwide own smartphones. By 2027, the global smartphone market will be valued at $795.3 billion.
Why am I recounting this story? Because it’s good for us to have a similar understanding of the metaverse.
In the earliest days of a new technology, it’s far too easy to dismiss or discount the real value it will have. One of the biggest mistakes an investor can make is having the thought that “I’d never use something like that,” and then discount the idea. That is a bad bias to have as an investor. It doesn’t matter whether we like it or would use it… What matters is how many others will.
Few could have predicted precisely how wide cell phone adoption would be… or the other technologies that would be built upon it. After all, we wouldn’t have many other applications – think of Uber, WhatsApp, or Google Maps – if it weren’t for the mobile phone.
But the investors who did grasp the massive potential in mobile phones early almost certainly made the best returns of their lives.
The metaverse will be much the same. We’ve already seen it provide desirable jobs for people in Southeast Asia. Facebook just rebranded as Meta due to the potential it sees in the metaverse.
And younger, digital-first generations are quickly making the move to metaverse gaming.
So while the metaverse may not look like much at first, when we look at it from an exponential perspective… we can start to imagine what products or services may evolve in the metaverse in the future.
So Skip, let’s keep a close eye on this trend. We won’t have to hang out in a metaverse.
But by understanding what’s going on and where we can invest, we’ll stay ahead of the curve and grow our wealth so that we can enjoy those rounds of golf in the real world.
Next, a reader wants to know more about shorting Tesla (TSLA):
Jeff, I’m not sure what service (if any) you could plug this into. Your take on Tesla seems to be bullish, understandably so, as you recommended them long ago when everyone called you crazy.
Lately, you have mentioned on several occasions you are not sure about being a buyer at the current valuation and Tesla’s stock is destined for a big fallback. Why not short the stock? I read every article you publish and want to thank you for everything you do. It is by far the best research service on the planet. I use you exclusively.
– Jeremy T.
Hi, Jeremy, and thanks for the kind words. I’m very glad you’re enjoying my research.
You’re correct that I’m a big fan of Tesla’s technology and the company. Tesla is one of the most advanced artificial intelligence companies in the world that happens to also have fantastic electric vehicle battery technology. It just happens to put its bleeding-edge technology into EVs that it is fantastic at manufacturing.
From my perspective, because of Tesla’s AI, it has become the most advanced self-driving tech company on the planet. And unless someone owns a Tesla and was given the beta software, very few understand how advanced Tesla has become.
And yet, you’re also correct that TSLA has become a very expensive stock.
Tesla is currently valued higher than several other top carmakers combined, and it’s sitting at an enterprise value (EV) of $1.2 trillion as I write. That puts its EV-to-sales ratio at roughly 25. In other words, its current price is equivalent to 25 years of sales (not profits). That is pretty crazy considering the company only has gross margins around 25%.
In other words, the stock has gotten a bit ahead of itself and is due for a pullback at some point.
So given that assessment, would I consider Tesla a good option for a short position?
The simple answer is no. Just because a stock is overvalued doesn’t mean that it can’t go higher.
And Tesla is unique. Irrespective of its moderate gross margins, the company continues to grow like wildfire. It has technology that is highly differentiated, and no one else has it.
The company is now at the stage where it is gushing free cash flow. Even better, Tesla has done a brilliant job of navigating the supply chain crisis – something I call the “Tech Shock.” So this is not the picture of a company that is one to short.
I’m not averse to short selling, and I expect that I will recommend some short sales when the markets turn down at some time in the future.
The key with short selling, though, is that our timing needs to be right. We’re preferably shorting weak companies, not strong ones like Tesla.
And short selling is not as straightforward as we might think… There is actually a lot of nuance. Investors who aren’t aware of the mechanics ultimately end up stacking the deck against themselves.
When we sell a stock short, we are borrowing shares, selling them, and creating a liability. We have to buy back the shares we sold to return them to the lender at some point. Ideally, we’re buying shares back at a price lower than what we borrowed. If so, we make a profit…maybe.
Every short sale is done on margin and requires a margin account. And as there is a lender, there is a cost to borrowing. Stocks that are considered easy to borrow – think large, highly liquid stocks – might have an annual margin interest rate of 5%.
But “hard to borrow” stocks can have a margin interest rate of 20% or more. That is why profit is a “maybe.” A successful short sale has to be timed well, and the stock’s drop has to be large enough to cover what we paid in margin interest.
But it gets worse. Here is what most won’t tell you…
The lender of our shares can call those shares back at the time of their choosing. This is where retail investors can really get screwed. We don’t have the kind of leverage that a fund has to preserve our position.
For example, let’s say that we sold $20,000 worth of shares in TSLA, believing it was due for a pullback. The stock then runs up 40% leading into the company’s earnings announcement.
We’re not worried because we are still expecting a pullback – perhaps if earnings aren’t as good as expected. But the day before the earnings announcement, the broker that lent us the stock calls the shares back and we take a 40% loss ($8,000)… plus whatever margin interest we paid and any commissions. The next day, the stock collapses.
Not only are we in the hole $8,000, but we also missed out on a big profit. It isn’t right or fair, but it is perfectly legal. It has even happened to me.
Additionally, the size of our potential losses is technically unlimited. Short sellers of Tesla have learned this painfully over the last couple of years.
Shorting Tesla has been the widow maker’s trade. Tesla’s stock has soared more than 20x. Can you imagine losing multiples of the amount that you received selling shares short? That has to hurt.
This is why my general advice to investors is to avoid short selling entirely – not just with Tesla. There are simply too many dynamics that favor Wall Street. An easier and safer way to be “short” on a stock is by simply purchasing put options on a company that you believe will drop.
Let’s conclude with a question about 5G stocks:
Hi, Jeff – I bought some of the 5G stocks you recommended a while back, but they are down. I haven’t heard you talk about 5G much lately, and I am wondering if I missed the run-up at this point?
I am debating if I should hold these or sell when I can and invest more in some of your newer recommendations in quantum computing, AI, or medical robotics.
I know you can’t provide investment advice, but I’m curious to get your thoughts about 5G stocks in general right now and where you think they might go in the next 12–24 months.
– Brien T.
Hi, Brien, and thanks for being a subscriber. As you said, I can’t give personalized investment advice, but I’m more than happy to talk about 5G’s future.
While I don’t write about 5G inThe Bleeding Edge every day, I do actually talk about it and research it every day given how important the trend is right now.
5G is nowhere near done yet. I would argue that we’re just getting started.
In the past, I’ve shown how the 5G build-out has three phases.
In Phase One, the infrastructure of the new networks is constructed. That includes things like 5G base stations, towers, and fiber-optic wiring. We entered Phase One in 2017, and it’s still ongoing today.
In Phase Two, devices go on sale. 5G phones and other products begin to appear in consumers’ hands. This phase kicked into high gear last year with the release of the 5G iPhone. Even with the current chip shortage, sales of 5G smartphones are on track to hit 560 million this year.
And in Phase Three, we begin to see 5G services offered. These are applications running on 5G networks. Think of things like enjoying a massively multiplayer online game on a mobile phone without any latency. That’s not possible with 4G, but it is with 5G.
We just entered Phase Three this summer. In fact, we hit an inflection point just a few months ago where more than 50% of all smartphones being sold are 5G-enabled devices.
And that means now is when 5G is starting to get really exciting. Developers are recognizing that there are enough users to start developing 5G applications.
Most people don’t care too much about 5G technology. But when we get more exciting applications that can only be accessed with a 5G device… then we’ll see people start to get interested.
More people will buy 5G phones in order to access the new applications. That leads to more 5G devices in the field, which will lead to more 5G apps being created. The cycle feeds on itself.
In fact, 5G will open up a whole new world of opportunities. We saw something similar with 4G.
What few people understand is that 4G was instrumental in some of the greatest technology success stories of the past decade. Uber, Lyft, Amazon, Spotify, Facebook – all these companies have 4G to thank for their success. And popular games likePokémon Go wouldn’t have been possible without 4G.
Without 4G, many companies wouldn’t exist, or else they’d be a fraction of the size they are today. And it will be the same story with 5G, but the opportunity is much larger.
As the 5G networks continue to be built out rapidly and 5G coverage improves around the world, the third phase will accelerate. And the investment opportunities will be enormous as this shift plays out.
Investors sitting on the sidelines will regret letting this opportunity slip by. I don’t want my readers to make that mistake.
I’m going to make sure that my subscribers inThe Near Future Reportand Exponential Tech Investormaintain exposure to the best large caps and most explosive small caps in the industry positioned for growth in the 5G wireless technology trend. We have a couple of more great years ahead of us in 5G.
That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.
Have a great weekend.
Regards,
Jeff Brown
Editor, The Bleeding Edge
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The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
