Transformity Research PRO June Newsletter: The COVID Pandemic is THE Most Economic and Behavioral Transformational Event since WWII
Dear Subscriber,
Tobin Smith here. I gotta tell ya--I have been either the publisher or editor-in-chief of many investment newsletters in my decades at Phillips Publishing/Investor Resources/founder at ChangeWave Research, founder of InvestorPlace. com. and now with my own investment research publishing shop Transformity Research Group--I thought I had seen it all.
But I have never had a month like May-June 2020 in my newsletter publishing life (except for the launch of the Elaine Garzarelli newsletter in 1995). From the huge momentum and 700%-1100% profits that came to our subscribers with our <$13 Nikola Motors April 24th BUY call on the stock, warrants, and units (one stock one warrant) came referrals and new subscribers like I have never seen before.
We just tripled the subscriber base of our core flagship Transformity Investing PRO (which now includes our Ultra Growth and Ultra Income portfolios) and our All-Access membership featuring newsletters + personal access + option swing trading service in the last 30 days.
PS since this general newsletter goes to everyone including our All-Access members, I do want to mention that the 5-year All Access returns to a 2-Year All-Access membership on July 5--so if you have been waiting to join All Access (direct text/messenger access to me and team, buying and selling options around our positions, exclusive Zoom calls with CEOs) now is the time to upgrade: click here (PS you have to subscribe to All Access with a new user name).
July 5th All Access is back to $495 for two years ok?
What Did We Learn in the First Half of 2020 That We Will Use to Make MORE Stupid Money in 2nd Half?
Obviously, we had a crazy ridiculous first half of 2020. First, we were dead-on right about hedging our portfolios on Jan 24 with April XOP (energy production), SPY, and QQQ put options. Subscribers who followed our advice close those April hedges with 850-1250% gains.
Then we were also dead right about going to cash on Feb 25 as our Transformity Macro Market Timing Index flashed "recession coming fast" as we updated our late February real-time economic activity indicators and received urgent warnings from our Transformity Research Experts Alliance (TREX for short) on the ground in China reporting to TR HQ on the quickly deteriorating health and economic conditions in Wuhan China.
And yes, we did use the market meltdown carnage to buy crushed energy infrastructure, mortgage REITs and preferred stocks in the energy patch and REIT world at prices 70-90% BELOW book values as if they were all going bankrupt and out of business. That was a magic moment to buy "atom-based" assets at below fire-sale prices--I call these plays "resurrection stocks".
We will update ALL our positions and Buy Under Prices in Part 2 of the June Newsletter and post the 6-month results and buy list on for both Ultra Income and Ultra Growth Portfolios.
BUT the Most Important Thing You REALLY Need to Understand TODAY Is What A Rare Moment In Investing Time We Are Living and Thriving From--The Mega Transformative COVID-19 World Pandemic Has Globally Transformed EVERYTHING (except innate DNA encoded human behavior)
We have a LOT of new subscribers--I need you to come with me to the 50,000-foot elevation cloud and let's get you straight on the how and why we are making so much flipping money right now. Because what we were actually "right about" is what you and I must talk about today.
You must comprehend and get your head around what this incredible relative instant wealth creation for Transformity Research clients MEANS and who we are going to keep making stupid money in stocks (in a stock market measured by the S&P 500 since 1957 has been about 8% annually): First,
1) When you earn a pre-tax return of 800% in the stock market in just 6 months, that is the equivalent of earning 100 YEARS of stock market wealth in just six months based on the S&P 500 return of about 8% annually since 1957
2) The reason we were able to earn 100 YEARS of stock market profits is directly correlated to us taking advantage of the most powerful economic shock and dislocation the world has experienced IN ONE HUNDRED years.
3) And a new stock investor class created out of the carnage (and $1250 disaster relief checks) that buys
Here is an excerpt from my next investment book "The Digital Platformity Principle" coming out from Wiley Financial books soon.
"In fact, the time compression of the invisible economic COVID bomb that hit the world in February 2020, and its transformative effect on consumer behavior and economic commerce, is better described contextually I think as IF the entire beginning and end of World War II was compressed into just 6 months (note: While the modern world of developed nations has largely contained their pandemics, it's the developing world like Brazil and the most powerful and dysfunctional country in the world the good ol' United States of America that are still struggling with containing their viral infection rates for mostly political and dysfunctional structural governing reasons--don't get me started.).
But jump in the time machine with me and go back in time with me to understand the amazing wealth-building opportunity we all share right now. After the last mega transformation world event, America post-WWII became the world's newest superpower and economic hegemony because A) We won the war with our Allies B) we came together as a nation will significant personal sacrifice shared from the top-to-bottom of the socioeconomic classes and C) America's industrial base pre-and post-war exploded in size and manpower (with lots of girl power too!) while our cities and economic infrastructure were not laid to waste from war and carpet bombing.
We were quite literally the only world power left standing. We had the foresight to fund the European rebuilding program named the Marshall Plan which kickstarted post-WWII Europe from the ashes. We had the wisdom to repay our brave unselfish military personal with college tuition (the GI Bill), low-cost mortgages from the VA, and corporate paid healthcare plan benefits that began in most industries.
Why the history lesson? Because from the beginning of my research and founding of ChangeWave Research in 2000 to my latest investment research and stock selection approach iteration in 2014 with Transformity Research, they have been both based on two basic core assumptions: They are:
A) Identifying the most powerful macro transformational and disruptive technological secular shifts/trends (i.e., 3-5-10 year unstoppable transitions vs. business cycle expansion and contraction) and Fed-based monetary transformations and then
B) Dissecting those long-tail secular transformations into the enabling technology micro-sectors that in the latest 21st-century digital transformation means
Investing in the high margin/low incremental cost digital platforms business models aka "The Platformity Investment Principle" and
BUYING the key IP ("intellectual property" developers and owners that provide the enabling digital horsepower technology that makes ubiquitous digital platforms ubiquitous
BUY the companies that use digital business process ubiquity to build platform-based enterprises that disrupt the existing status quo.
Key Point: Investing in the Platformity Principle companies is the way you get rich in stocks in the 21st century.
Period. Unless your last name is Kardashian.
The primal law of the Transformity Research jungle is the simple "Law of Transformity" which states that " the greater the impact and velocity of secular (non-cyclical) "S-Curve" change, the greater the magnitude of new wealth is created and old wealth destroyed."
Following the Law of Transformity and the Law of Platformity brought us Apple and Sirius Satellite Radio and Tesla and AMD and NVDA and many other 5X-10X-100X winners in the 21st-century investment world. AT ChangeWave Research we accomplished a 44% annual portfolio return and avoided bear markets in 2000 and 2008-2009.
But with some major tweaks to the ChangeWave Law of Transformity and the addition of the Transformity Law of Digital Platformity as in "He who owns the dominant digital platform in any B2B or B2C industry wins the highest profit margins, the longest secular growth, and the highest stock market valuations" we have improved on our ChangeWave wealth-building results by 35% per year.
With the addition of the Digital Platformity Principle, we improved our 44% ChangeWave results to now 66%-per-year annual returns 2014-2020. And while it is "pinch yourself amazing" to acknowledge that our portfolio gains in 2020 now exceed 750%, I think there are a LOT of 200%-400% winners left in this Monster Millenial Stocks environment.
But while all this massive transformative change came to the 21st-century world, a significant shift in equity valuation came as well. I think the concept behind why digital-based business models based on "bytes" have so seriously outperformed traditional "atoms" or "value-based businesses since 2002 (minus the Great Recession period 2007-2009) is best explained by the "Bytes vs. Atoms" and "Value vs. Secular Growth" investing strategies.
Bytes (Secular Asset Light High Gross Margin Growth Companies) Vs Atoms (Asset Heavy Business cycle based Growth = Value) Investing in 2020: Here is Why Transformation BYTES Investing in the 21st Century CRUSHES Status Quo 20th Century ATOMS Based Value Investing In Most Every Case (except when you can buy USA Compressors $2.05 annual dividend for $5 in March like we did, ok?)
Looking at the stock market today, the first thought that comes to mind of a Buffet like "value investor" is that the stock market is divorced from economic reality. The S&P 500 is only a few percent away from where it started in 2020 and the real US economy is in a sharp recession that, IF the Congress does not implement a way QUICKLY for 40-50 million American households to NOT get evicted from their homes by September 1, much of the American economy will slide into a real Depression.
On the surface, it looks like stocks discount one incredibly rosy version of the future. In that version, everything goes back to normal like nothing happened; we basically just entered and quickly exited a sharp recession and earnings came back to 90% pre-coronavirus normal by the end of 2021-Q2 2022.
NOTE: In any scenario, we’ll exit the COVID pandemic with close to $10 trillion of additional debt on the government’s and the Fed’s balance sheets--which if you are a "value investor" drives you completely nuts! Already we hear what we heard in the 2009 Great Recession bailout: "OH DEAR inflation is going to rage--borrowers will be crowded out of the debt market--the Minsky Moment aka the end is near!"
Yet where was all the "money printing" inflation since the Fed stepped in to save the world in 2008-2009? The answer is if you are a 20th-century value investor, you are using the 20th-century playbook that says "When the Fed makes money free, demand exceeds supply and prices go up!"
And that WAS true in America's atoms based economy. As we will get to in a second, "price inflation" is the main casualty of the 21st century "Bits and Bytes" economy--you know--where the secular growth is!
Above I used the term "discount." To a traditional value investor (the investors who have trailed the S&P 500 returns for 18 of the last 20 years), when you "discount" something you estimate its future earnings (cash flows) at a discount rate based on risk-free 5-or-10 year US bonds to reflect future value in today’s dollars. Yet in today's crisis like the Great Recession 2008-2009, the US Federal Reserve bought trillions of dollars of US Treasuries and corporate bonds and has taken short term Fed Funds interest rates to almost zero.
What the "Atoms not Bytes" investor can't get through their wee little minds is this FED action has pushed the discount rate SO LOW that market behavior to a large degree reflects NOT the sum of future scenarios but reflect the much lower discount rate by which these scenarios are discounted. In short, when you discount future cash flows at zero, you are discounting to INFINITY--and there is NO WAY a value investor can get himself/herself to buy Nikola Motors or Nvidia or AMD stocks--they literally are investing with no functional investing compass.
So they buy "cheap" atom-based companies and watch them get cheaper and cheaper and flail their arms and scream "Amazon sells for 200 p/e" or "Microsoft is worth more than the entire US major banking industry!"
What "value" investors have failed to realize for 20 years are two crucial economic facts:
1) the US economy in the second half of the 20th century was a non-Global business cycle driven economy based on turning atoms into things.
2) This digitally transformed economy ain't the last half of the 20th century.
The old term "mean reversion" simply means to "value" stocks that if GM was valued at $100 a share and then dropped to $50 in a business cycle recession that when the next business and growth expansion cycle kicked in, GM would revert to its old $100 value. So you bought "average p/e" stocks when they became "low p/e stocks" in a recession and you bet they would return to average or better p/e stocks in the next expansion cycle. In the world after WWII, "value" investing worked because the economy was mostly North American and atom-based. When the business cycle kicked in investors were willing to pay a higher multiple on earnings/cash flow and look forward confident of higher EPS and GM stock "reverted to its mean value average."
Flash forward to today. In the Transformity Investing methodology, we are taking a time machine approach. Because long term secular (nonbusiness cycle sensitive) digital or biotechnology Platform transformation last 3-5-10 years, we can see 3-5-10 years in the future as well.
For instance, all forms of artificial intelligence (machine learning, algorithmic instructions, robotic AI, Internet-of-Things) will be as fully implemented and mainstream as Siri and Alexa are today over the next 5-10 years. The 21st-century Digital Bytes Economy does NOT "revert to its mean" valuation because it REDUCES manufacturing costs, lowers personnel costs, reduces the cost of enterprise business processes and workflows, and does this magic with VERY high gross unit margins aka "unit economics."
Key Point: Bits and Bytes technology have completely different business models than atoms based enterprises with 50-80-120% HIGHER unit economics that atom-based companies. The new digital technology platforms are leading the way on the new workspace and workflow mobility--the ability for people who create value via a keyboard or personal selling to work from anywhere, to be significantly more productive (like me 35 years commuting 90-120 minutes a DAY just to be in an office) or perform any brain powered task without corporate office proximity.
Now you get it--the "value" of investing in the truly transformational Platformity micro sectors is when people BUY digital functionality as-a-service, the client/customer SAVES BIG MONEY, cuts down overhead and administrative overhead (non-incoming producing headcount) etc. The ROI (return on invested capital) in the 21st-century Bits & Bytes digital platform sectors of the economy vs. the atom-based industries are amazingly high vs. the 20th century atoms-based economy. For example, I recently did a complete and complex transaction 100% on Docusign's digital signature platform that in the 20th century would have taken weeks and multiple hand-offs. This deal took 5 minutes. No document copying, no drive to deliver docs, no legal review, no copying and storage, and filing, etc. No physical storage, not secretaries, no executive assistants--NO HUMANS touched anything other than a keyboard.
If you are a business, do you want MORE of the lower-cost business processing and workflows, or HIGHER costs?
If you call your friend on Facebook Call, do you miss not having to pay for the call?
Do you want to get your next Buy Alert like NKLA via physical mail, text or email?
You get it. The more transformational and disruptive Digital Platformity functionality is, the MORE valuable it becomes. And because digital platformity is based on digital Intellectual Property than continues every day to be more efficient and more valuable, dominant digital platformity companies get MUCH MORE VALUABLE
And finally, when millions of bits & bytes business model companies makes MORE EARNINGS by disrupting the Atoms-based economy or industry practices, and people subscribe to your cost-cutting service (and add on new services without any selling cost ex-commissions), a significant cost is taking OUT of the economy aka as you have VERY VERY low inflation.
The old generals always fight with the tactics of the last war--that describes "value investors" looking to find a dollar bill on the ground and buy it for 50 cents.
NOW LET's Talk About What The Federal Reserve Banks All Over the World Have Done to Financial Asset Prices
If you are a disheveled value fund manager who has failed to beat "growth investing" for 18 years out of 20, this is how you see the world. "For the last 12 years, the Fed is buying everything, the music is playing, and investors keep dancing (they mean speculating)." When you translate that playbook, what they really mean is while the value investors keep buying "undervalued" companies in atoms based businesses, they continue to underperform the Transformtiy Research results by 5-10X every year.
I am not trying to be smug here, but wasn't it Einstein who said " definition of insanity is doing the same thing that is failing over and over again and expecting a different outcome each time?
While you are pondering this, here is another observation.
If you look deeper under the hood of the stock market, you’ll see that there is a significant performance dichotomy between bytes stocks and atoms stocks. The atoms stocks are of course losing to the bytes, badly. If you compare the performance of the S&P 500 (SPY) traditional market-capitalization index – the one you see in the news – to its less-known cousin, the S&P 500 equal-weighted (RSP), you’ll see a significant disparity in performance.
In the market-cap-weighted version, the top five stocks (all five are Digital Platformity Rules – Facebook, Amazon, Netflix, Google, Apple, Microsoft) now represent 21% of the capitalization of the index (the last time this happened was 1999) and thus account for 21% of the returns. IN the QQQ these Digital Platformity Rulers represent 41% of the total value of the Nasdaq 100 index.
In RSP these stocks have a weight of 0.1% (they’re just 6 out of 500 stocks).
SPY is down 4% for the year, where RSP is down 16% – remember, same stocks, it’s just that SPY is heavily weighted toward bytes stocks, as they have larger market caps, and RSP treats bytes and atoms equally.
The lesson? No money manager can compete with the Bits and Bytes stocks by buying "value stocks" and "great valuations. Comparing the value of HIGH unit economics Bytes companies vs. low unit economics atoms stocks is a disaster.
Money managers who want to stay in business HAVE TO BUY the Bits & Bytes Platformity dominators or go out of business because they make up 40% of the indexes they compete against.
Furthermore, The Platformity Principle has formed a virtuous business valuation and stock market within the stock market. Following these two principles of Transformity Investing brought us to Nvidia and AMD in 2016 which we sold at 15-25X profits in 2020 (we actually owned NVDA twice). They were the #1 performing stocks every year in the SP 500 since 2016.
The Platformity Principle brought us to Nikola Motors in late April.
The Platformity Principle will bring us MANY new winning companies while we outperform 99.5% of hedge funds and mutual funds for almost 20 years in a row (ChangeWave and Transformity Research).
You are in the right place at the right time!
Buy Under Portfolios out ASAP!
Welcome to ALL the new subscribers--we ain't done making serious serious money yet!