Eyes on the Prize
On January 9, 2007 a man in a black turtleneck and bespectacled with John Lennon-style glasses stood on a stage and unveiled what can only be called a truly revolutionary product — the iPhone.
Eager buyers lined up at Apple stores on June 28, 2007 and plunked down $500 to buy the first edition iPhone. Apple’s share price had risen 40% in the 5 months since the January product announcement. Enthusiasm continued and the stock had just about doubled by the end of that year.
By the end of 2008, all those gains for the share price were gone. Despite all of Apple’s success rewriting the rules for what a simple mobile phone could do and creating legions of loyal fans, the stock price had fallen right back to where it was the day Steve Jobs stood on that stage and declared “Every once in a while a revolutionary product comes along that changes everything…”
It’s almost hard to believe the price range for Apple shares during those first couple of years of the iPhones’ existence. Adjusting for stock splits, Apple shares closed at $3.31 on January 9, 2007. The high for 2007 was hit on December 27 – $7.25. Exactly two months later, Apple’s price had fallen to $4.22.
January 9, 2009 – exactly two years after the iPhone’s introduction, Apple shares closed for trading at $3.23.
Can you imagine how some investors who got swooped up in the early iPhone hype and bought Apple stock at $7 only to see the share price get cut in half over the next few months must have felt?
I’m sure we all know that sinking feeling that we got sucked into the hype, paid way too much for a stock, better to cut losses now before it gets worse…
But can you imagine how you’d feel if you’d bailed on one of the greatest wealth-building growth stories of all time, took a 50% loss on an investment that would’ve return 21,714% if you’d just had the intestinal fortitude to hold it?
The Forest and the Trees
Now of course, the first two years of the iPhone’s existence coincided with the historic global economic meltdown now affectionately known as The Great Financial Crisis (GFC). It was a damn scary time, as we stood on the edge of the economic abyss. Investors that were unable to focus on the potential of a stupid cell phone as they stared into the gaping maw of financial ruin can be 100% forgiven.
Still, the fear factor doesn’t change the fact that Apple shares traded at bargain prices for more than two years after the iPhone’s debut. Apple stock price didn’t break above a split-adjusted $10 a share until September 20, 2010.
I assume you probably have an idea where I’m going with this article…
Right now, the global economy is, umm, uncertain. There’s open war in Europe, a cold war with China, banks are failing, inflation remains way too high, interest rates may get pushed even higher, and the U.S. economy is facing a credit crunch that will certainly lead to a recession – if one hasn’t already started…
And I can’t tell you how investors will respond to all this over the next several months. It’s reasonable to think that a credit crunch from tighter lending standards will reduce liquidity to the point that big investment funds and banks have no choice but to sell stock to raise cash.
I’ve lived through a few “red waterfall” periods in the stock market. It’s always nice to think that investors have learned the lessons of the past, that cooler heads will prevail when the going gets tough, that our rational side will keep reminding us that this too shall pass…
But I’ve learned that when selling gets intense, and consecutive daily drops start to look like red waterfalls on the charts, panic-selling will absolutely take over. And I’ve yet to see a bear market end without any panic-selling…
Now again, I’m not telling you that panic will inevitably set in, and the stock market is about to fall off a cliff. Maybe it will, maybe it won’t…
What I am telling you is that whatever happens over the next six months or so will have very little impact on the trajectory of the most significant innovations that are currently making their way into the real economy.
And by my count, there are two innovation driven sectors that will inevitably be significantly bigger in a year or two than they are today: artificial intelligence and electric vehicles.
Eyes on the Prize
I know people like to gripe about the problems with electric vehicles – the batteries don’t offer enough range, charging stations are too few and far between, they aren’t as “green” as advertised, and so on…
But really, these are all incidental challenges that are not going to stand in the way of the inevitable. The automakers are invested in the transition to EVs. That’s not going to change. 66 million cars were sold around the world in 2022. 7.8 million were EVs. There’s a lot of opportunity…
I don’t care about the incumbents. The Fords and GMs of the world will only manage to replace current revenue. The startups are the place to be. The startups are not encumbered by the need to support a legacy business at the same time they transition to a new one.
The startups are purely a marketshare play. And they are all starting at very low numbers. The question for the upstart EV makers is cash. Which ones have the cash to survive until demand and production get into a self-sustaining groove.
There are only two, and I’ve written them both up here and here.
Artificial Intelligence is a tougher sector to get a handle on for a few reasons. It’s newer so there’s less reliable data on how exactly businesses will use it. And right now, it’s mostly in the hands of Big Tech, which isn’t nearly as fun as discovering the next big thing…
I’ve already recommended one AI stock you can learn about here. And I’m finishing up my research on another one that I should manage to present to you this week, so stay tuned for that.
And so you know, we will be talking about AI stocks on an ongoing basis for the next several months I’m sure, and probably longer than that.
Don’t forget: eyes on the prize.
That’s it for me today, take care and I’ll talk to you on Wednesday.
Briton Ryle
Chief Investment Strategist
Pro Trader Today
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