"BMW's entire [3 Series] business is going to go to zero." — Chamath Palihapitiya, former Facebook executive and founder of Social Capital
This month's Denton Business Chronicle features the re-emergence of grocery delivery services in the Denton area. Almost 20 years ago, Web-ordered grocery delivery to your home was the hottest new thing. Startups like Peapod, Kozmo and GroceryWorks threatened the old guard.
The CEO of Andersen Consulting (now Accenture, the world's largest management consultancy firm and — full disclosure — my employer from 1998-2008) left his prestigious position to become the head of the dot-com grocery startup Webvan. A few months later, the dot-com bubble imploded and Webvan filed for bankruptcy.
Technology disruption is an amazing thing. It is one of the core principles of America's creative-destruction model of capitalism. Old businesses die to make way for the new. Often this creates social and political ripples as the displaced workers seek help from their elected representatives. But it often also results in lower prices, higher convenience and better experiences for America's vast consumer nation.
The re-emergence of online grocery delivery almost 20 years after its nascent beginnings is interesting indeed. New startups have learned from the failings of the past. New technology platforms (like UberEATS) are linking legacy franchises with new economy preferences. In some cases, blending of old and new is the mode du jour, as companies like Amazon acquire Whole Foods or Albertsons repilots home delivery.
The question for investors is: Where might you invest to exploit these trends?
Some may prefer to hop on the Amazon bandwagon trading at nearly 200 times earnings. Others still, like New Economy true believer Chamath Palihapitiya, would point you to the revolutionary stylings of Tesla or digital currencies like bitcoin.
Tesla, which Palihapitiya thinks will kill "old economy" companies like BMW, has no earnings. In fact, Tesla is burning somewhere between $1 billion and 2 billion of cash each year in its attempt to kill BMW. The world may turn away from combustion engines over the next 20 years, but why would one think that BMW, Audi, Mercedes-Benz or Porsche would not provide a competitive response?
There are lots of wonderful technology companies disrupting their old economy competitors to create a better experience for you and me: Amazon, Uber, Netflix, Tesla, on and on. The only problem for investors is that collectively today's tech-boom players in comparison with traditional "value plays" are more expensive than they were during the peak of the dot-com boom.
Enjoy the benefits of today's wonderful new technologies, but think twice about chasing their stocks. Instead, focus on the few bargains that exist today.
In our own fund, we continue to focus on global businesses that benefit from a falling dollar or those where rising interest rates will provide a strong tailwind.
In addition, with many hard-asset prices at multigenerational lows, companies with hard assets that benefit from rising prices may be better long-term bets than new economy wonders like bitcoin and Tesla.
Jonathon Fite is a managing partner of KMF Investments, a Texas-based hedge fund. He is an adjunct professor with the College of Business at the University of North Texas. This column is provided for general interest only and should not be construed as a solicitation or personal investment advice. Comments may be sent to email@KMFInvestments.com.