Name: Tech Will Continue its Winning Streak in 2016
Uploaded: 2015-12-09
Duration: 5 min 9 s
Description: There’s plenty of room for investment opportunity.

[ MUSIC ] So because this is Fortune magazine. And the readers of this are investors, I know you have some things to say about how you position your resources portfolio. But I also wanna hear from the technology site, we keep saying tech is this idiosyncratic engine of growth. If that's the kind of thing that investors have to look for in 2016, are there enough opportunities that haven't been fully exploited? So, Facebook is now a $ 300 billion market cap. Google is well on it's way. Are there other things that investors can do to find that secular growth? And are there things that we can do to take advantage of more than commodity prices to make money in industrials or whatever the case may be? I'd love to just go around and get an answer from everyone. If you'd like to start, Kate? Sure, well, I think lower commodity prices are benefitting not just Tech, which isn't very commodity intensive- Right. But consumer staples, consumer discretionary, though it's lots of other companies that use those inputs and while we talked about how revenue growth is slow and companies are making earnings for cost cutting, part of that cost cutting is lower energy prices, is lower commodity prices So I think where you look for growth is in companies that has continued to see some revenue growth but are able also to grow earnings because they're benefiting from some of these other trends? So can you share some examples? Sure, look at companies in the consumer staple area like Pepsi, where basically you're still getting that growth. But not, you know, but it's not because there's lots of demand growth, it's because there's lower commodity prices. This is coming in. So I'd be looking at companies like that, where everybody's looking for growth and it's a very very low growth environment. And then if we're going to chase this idea into technology companies, I promised you we weren't going to have the bubble conversation today because it's pretty tired. Where are the opportunities for the investor looking at 2016 and saying I want growth, but I don't want to feel foolish if the cycle does turn. Well look, we don't take a one year horizon. Of course not. We're not a hedge fund. But I can talk more generally about trends. But you said something earlier which I just want to give some facts on. Which is that you said in effect in tech the rich are getting richer. And that's true in certain sub- segments. Internet advertising would be a great example of that. Right. Take an example if you look at software. If you look over the last ten years and you break the market up into three categories, the top ten companies from revenue, and then 11 through 100, and then the rest of the industry. We were kind of focused on the rest of the industry because the rest of those companies are public. Right. One to 10 over the last ten years have lost market share. Ten to a hundred have basically been constant from a market share standpoint and the rest have picked up about six points a market share. And the entire pie has gone up about 3x in terms of actual dollars so there's very few industries where you can have that much growth in emerging companies and have the total pie grow and have every subsector still have grown. Right, and that's what's happened in [ UNKNOWN ]. So what areas within software should investors be looking at? Is it Cloud, is it CRM? So we focus on, really, two broad areas. We focus on enterprise software, and then we focus on consumer internet, and we think there's still tremendous opportunities in both sectors. So I think that We talked about this a little bit earlier about how everybody wants to talk about software as whether it's eating the world or it's disruptive. But when you think about it really, I view it as much more enabling the world. And there's not a business process from whether you go to the ATM in the morning, you get into a cab, no matter what process you do, software is touching a bigger and bigger percentage of that interaction. And that's gonna grow regardless of [ UNKNOWN ] If you talk to most fortune 500 companies, even though we don't invest directly in fortune 500 companies, we've spent a lot of time talking to them about what are they doing. All of them say their highest ROI, from the [ UNKNOWN ] standpoint, is in software. And so they're all generally increasing IT budgets. And IT budgets have been on a 15 year growth path. I think they'll be on another 15 year growth path. Now are you gonna have industries, oil and gas, that are probably gonna invest less in IT for the next few? Sure, you're always gonna have them. But if you look at it on a consolidated basis, that's not the case. The reason I'm not as bought into everything having to be disruptive, is take an example that's been very popular in the venture world, which we have invested in Which is thin tack. There's this whole world of lending clubs and companies that will disintermediate Citibank. Not a good year for the [ INAUDIBLE ]? It hasn't been a good year. And I think there's a couple of reasons. Because I think the one thing that people underestimate is that brands still have value. If you go call, well not investors and lending club. But if you were to call them up and ask them, what are one of the fastest growth channels? They'll tell you, direct mail. Okay. Which is not really sexy. And if you think about it, if you think about their unaide, awareness, my guess is it's not very high. If you think about Citibank's unaided awareness it's extremely high. So what are banks doing? They're coming up with better technology solutions to provide similar services to their consumers. And that's true across lots of industries.

There’s plenty of room for investment opportunity.