Director James Wells has his boots on the ground in Vancouver this week. He’s at the Sprott Natural Resource Symposium diving into the latest trends in the commodities markets.
So today, I (Maria) am bringing you a special “tech” edition of our Friday mailbag.
As managing editor of The Daily Cut, I work closely with editor Chris Lowe to bring you the insights you won’t hear anywhere else. And every day, I read the feedback you send in.
A lot of that feedback these past few days has been about tech. And many eyes are on our in-house expert on the subject, Jeff Brown…
Cut regulars know Jeff held an investor seminar last week, the Accelerated Profits Summit.
If you’re one of the thousands of readers who tuned in, a big thanks from Jeff and all of us here at Legacy. If you couldn’t make it, you’ll want to read today’s mailbag closely.
Below, Jeff answers some of the most common tech questions on your mind.
Whether it’s the future of 5G wireless networks… the implications of blockchain technology… or the best ways to invest in companies going public, Jeff taps into his 30 years as a Silicon Valley insider to bring you the answers.
So let’s get right to it, starting with two questions about the 5G buildout…
Reader question: How do you bring 5G to rural areas? 4G needs very few towers. Not so for the upgrade. Strikes me as an expensive proposition.
– Joseph O.
Jeff’s answer: Hi, Joseph. You’re correct. Building out a nationwide 5G network will be a large investment in the nation’s wireless network infrastructure.
To give you an idea, $50 billion was invested between 2012 and 2016 to build out our current 4G networks. It’s estimated that this created 600,000 new jobs and as much as $150 billion in GDP growth.
5G is a different story. As much as $275 billion will be invested by U.S. wireless carriers to build out these networks. That’s more than five times the amount of the 4G investment.
But the economic impact is well worth the investment. The 5G infrastructure project will create around 3 million jobs and deliver an estimated $500 billion in GDP growth.
And you’re correct that 5G will need many more towers than 4G.
5G uses small cell architecture, which requires far more cell phone tower locations. For major metropolitan areas, this could mean one small cell phone tower on almost every street corner.
Today, there are about 200,000 cell phone towers scattered across the U.S.
Yet, when the 5G network is constructed, there will be more than 1 million cell phone towers to support the higher speeds and new services delivered over 5G.
Wireless carriers always focus on the densest populations first and then eventually get around to addressing rural coverage with new network buildouts.
It’s definitely frustrating for consumers who have to wait for the advanced services. But we can understand why the wireless carriers build out in this fashion.
They need to generate revenue quickly from the expensive buildout. That revenue eventually helps fund the buildout in the more rural parts of the country.
Fortunately, President Trump has been very vocal about his desire to bring 5G to rural areas quickly. Here’s what he said during a conference in April:
“As we are making great progress with 5G, we’re also focused on rural communities that do not have access to broadband at all.
“But I have to say, I’ve been talking about broadband for rural America – the farmers and others. They just haven’t been treated properly. And now, what we’re doing is we’re making it a priority.”
I suspect the president will keep his promise to bring 5G to rural America.
To ensure that happens, I wouldn’t be surprised at all to see the administration offering some economic incentives provided by the U.S. government to the wireless carriers, to ensure network coverage even in places that might not make economic sense for the wireless carriers.
This is a fairly standard public/private model around the world in developed countries to ensure that all citizens have the same access to critical services – and certainly wireless telecommunications fall under that category.
One final point. 5G-enabled phones will work on 4G networks. So even consumers who spend most of their time in rural areas can enjoy 5G speeds when they are within network coverage. When they are outside of 5G service areas, the phones will simply “fall back” onto the 4G network.
Reader question: So I am a bit confused. [Your research] says to invest. But I see other things from Bonner & Partners saying a crash is coming. So is it safe to invest in these 5G companies when the market is at an all-time high? Or do we wait for a correction to get a position? It’s confusing and feels like going out on a limb at these high levels of indexes.
– Travis W.
Jeff’s answer: Thanks for writing in, Travis.
Bonner & Partners, as well as our parent company, Legacy Research, publishes several different research publications. We pride ourselves on completely independent, objective, and conflict-free investment research. The diversity of expertise amongst the experts on our team is a great strength.
And it’s natural that we disagree on occasion on certain topics. Oftentimes, the difference in views can be just a matter of timing.
But let me tell you what I see in today’s market…
Even with the protracted trade negotiations and tariffs, the U.S. economy has the lowest unemployment and the highest labor force participation rates.
I do agree that there are certain areas in the stock market that are overvalued. But I don’t see that across all asset classes. There are still great investment opportunities at great valuations.
And the amount of investment into technology companies in particular is at an all-time high. Let’s have a look at the chart below:
U.S. venture capital investment last year was at record levels, and 2019 is shaping up to be at or above last year’s investment levels.
This means that there are enough great investment opportunities in early stage technology companies to justify the record levels of investment.
At the same time, 2019 is shaping up to be far and away the best year in two decades for IPOs (initial public offerings).
Companies like Uber, Lyft, Pinterest, and Slack have gone public.
A healthy IPO market returns capital back to large investors, who in turn take much of those profits and reinvest in new technology companies. This activity is driving the most incredible technological innovation that I’ve ever seen.
Artificial intelligence and process automation are stimulating economic growth, creating new jobs, and simplifying tasks that were previously inefficient.
If you ask me, this is a great environment for future business growth.
Speaking of IPOs, one reader wants to know about the dos and don’ts…
Reader question: Hi, Jeff. You’ve said that there is a right way and a wrong way to invest in IPOs. What is the right way, and what is the wrong way?
– Martha W.
Jeff’s answer: Thanks for the question, Martha.
Yes. You’re absolutely correct that there is a right way, and a wrong way, to invest in an IPO. Let’s talk about the right way first. There are really three great opportunities to invest in an IPO:
1) First opportunity: Investors can buy pre-IPO shares from their brokers. Leading up to an IPO, some brokers will get an allocation of pre-IPO shares. And the brokers can offer these shares to clients.
But even if your broker gets an allocation of the IPO, you might not be able to get an allocation of shares. It depends on how many total shares the underwriters allocate to your broker… which then allocates those shares, often favoring its biggest customers.
For this reason, buying pre-IPO shares is usually difficult for everyday investors. The majority of pre-IPO shares go to institutions and high-net-worth individuals.
2) Second opportunity: Investors can buy shares on the day of the IPO. But for most IPOs, this tends not to be the best time to invest – unless your intention is to trade quickly in and out of a stock.
For example, when a hot technology IPO prices at $20, when it actually starts trading, the stock opens at $30. The reason is that large institutions or hedge funds are able to place orders faster than retail investors, and the stock has already run up.
There is a lot of speculative money in popular IPOs in the first three months after the IPO, and that tends to be a volatile time.
3) Third opportunity: Readers of my investing service Exponential Tech Investor will be familiar with the third opportunity. This is our “magic window.”
When a stock IPOs, the company insiders – employees and early investors of the company – are bound by a “lock-up” period.
Employees and early investors are not allowed to sell any shares of their stock during that time. This period typically lasts 180 days after the IPO date.
The market knows that once the lock-up expiration happens, many early investors and employees will sell a significant number of shares. It is the first opportunity after typically five to 10 years of being invested that they have to take some money off the table.
As a result, the market tends to sell off a stock in the weeks that lead up to the lock-up expiration.
This creates a fantastic opportunity for smart investors to get shares of companies, often at temporarily low valuations.
In fact, it is not unusual to see a stock drop below the level of the original IPO pricing… which means retail investors can buy in at a price that is better than what the investment banks paid at the IPO.
Just knowing the above will put you well ahead of the game as an investor. But it doesn’t mean to invest in the same way for every IPO.
In investing, context is everything. Understanding the fundamental technology of a company, the value that it provides to the industry that it is serving, whether or not customers will buy the product or service, its growth potential, and of course, its valuation is essential to making good investment decisions.
The wrong way to invest in an IPO would be to buy a stock without a firm understanding of these critical factors.
Fortunately, I take care of all that for my readers. That’s my entire mission: deliver market-crushing returns from the best tech companies on the market.
Finally, a thankful reader writes in about blockchain technology – and what it means in governments’ fight for digital supremacy…
Reader question: In today’s world, it’s amazing to even be acknowledged, let alone see that you are actually reading, replying to, and including feedback in your letters. Incredible stuff; it says volumes about the type of business you run.
I believe you are in Washington, D.C., and hopefully can get to Trump or someone who has his ear.
As you know, Trump fired off a bunch of BS about crypto, Libra, and blockchain in general. [Editor’s note: Catch up here.]
As you and I know, there are only two possibilities for this type of response:
Ignorance
Corruption
I don’t think Donald Trump is corrupt, but I think the people feeding him are corrupt or totally ignorant. Someone needs to get to Donald Trump and let him know the truth.
If Mr. Trump were to understand what is at stake and how he could hold the Democrats accountable with blockchain technology and drain the swamp with crypto and blockchain, he would move 5-10% of swing voters his way with a strong government initiative to create its own crypto…
In other words, what Mr. Trump apparently does not know is that crypto and blockchain are the fulfillment of “drain the swamp.”
The biggest swamp is in finance and money, and he is backing the U.S. dollar, the absolute king of corruption, with the Federal Reserve.
If the U.S. does not get behind the blockchain crypto movement, the U.S. will fall behind and be left behind. Getting behind in today’s world means being checkmated in the digital race to supremacy. And Mr. Trump is too much of a competitor to lose.
– Steve S.
Jeff’s answer: Hello, Steve. My priority is always to my readers. I can’t always respond to each piece of feedback. But I always review all the feedback and questions.
And you’ve brought an interesting question to our mailbag today. As I shared with readers of The Bleeding Edge (my free tech e-letter) last Thursday, I just returned from my trip to Washington, D.C.
I met policymakers there to educate them on the merits of blockchain technology. I didn’t get the chance to meet the president, though. Perhaps next time.
But the president’s comments regarding Libra and Facebook are interesting. Here’s what he had to say:
Some of us might take issue with the president’s style at times. But he’s not a stupid man, and he uses social media with purpose.
To me, this was a shot across the bow to Facebook.
The president is saying to Facebook, “We’re watching. Don’t think you can launch a global reserve currency and act like a central bank.” After all, while Facebook is a fantastic investment, the company itself is not known to be a good actor.
The president’s comments were intentional. It lit a fire underneath the policymakers right before the congressional hearings with Facebook got underway.
The timing of the comments was calculated and intentional. And it made everybody aware that the White House is tracking these developments closely. And I view these comments as a good thing for the industry.
This one immediately raised awareness in Washington about cryptocurrencies and blockchain technology.
This was pretty low on the list of priorities in D.C., but the increased awareness allowed us to have deeper discussions than we have in the past.
It also raised the profile and importance of the Congressional Blockchain Caucus. And fortunately, we have four solid co-chairs of the caucus that actually understand how blockchain technology can be used to make government services more efficient… among many other benefits.
And to your point, I do think that the U.S. will eventually get around to its own “e-dollar.” It is inevitable that the U.S. Treasury will migrate away from paper bills into a completely fungible digital representation of the U.S. dollar.
That’s all for this week. As always, keep your questions coming at [email protected].
And have a great weekend.
Regards,
Maria Bonaventura
Managing Editor, The Daily Cut