Artificial intelligence and ChatGPT are likely to change our future just as much as the internet once did. Nevertheless, it is important to keep a sober look when investing, Kubilay Yalcin writes in an article on finews.first.
Continued interest rate hikes put tech stocks under pressure last year until Microsoft founder Bill Gates announced a «tech revolution»: «It will change how people work, learn, travel, get health care, and communicate with each other,» Gates said. Since then, the AI euphoria has fueled stocks in the technology sector. Many stocks in this sector have been among the best over the past half year. Right?
In fact, the potential of this new technology is enormous. However, some use cases, such as the language models popularized by OpenAI, are still in their infancy. And history has shown that groundbreaking technologies take time – for example with the Internet in the early 2000s. Even harder to answer is who the winners (and losers) are.
«Only five of these seven companies still exist today»
Hopes were still high around the turn of the millennium – of the ten largest listed companies by market capitalization at the beginning of the year 2000, seven were technology or telecommunications companies. At that time, the possibilities of the worldwide web electrified the financial markets.
However, only five of these seven companies still exist today. For four of the latter, the share price development from December 31, 1999, to June 30, 2023, lagged far behind the global MSCI World share index. Only Microsoft shares performed significantly better during this period – although even here there was a long dry spell. That's why it's important for us to keep a level head even in times when stock markets are fueled by too much imagination. The past has taught us that, especially in these market phases, companies are often paid too much - whose profit potential has to be realized first.
«This form of portfolio management differs from speculation»
We have been focusing on shares of high-quality companies for years. And for us, «quality» means above all a strong future earnings development that is as predictable as possible. They are attractive business models with solid balance sheets that can withstand setbacks and should prove resilient in times of crisis. We find such quality companies worldwide and in many sectors – including technology.
We prefer companies where we can estimate future earnings development with above-average accuracy. A hype, a fashionable topic, even if the prices seem to literally explode in the short term, is far from being a good investment without a thorough analysis. This form of portfolio management differs from speculation, which usually involves a lot of uncertainty.
«Only first-class companies can survive times of crisis and grow their profits in the long term»
Not least because of this, there is always only a limited number of shares in our portfolios. Because only first-class companies that hold their own in their market year after year give us the confidence that they can survive times of crisis and grow their profits at a growth rate above inflation in the long term.
We do this with strict valuation discipline, the necessary patience and a clear view of the long-term value drivers. This is the only way for our customers to have the best chance of benefiting from the aforementioned «compounding» over the years, i.e. from the continuous and ultimately exponential growth of their invested assets.
Kubilay Yalcin has been Portfolio Director Equities at Flossbach von Storch since 2020. After assignments in London and Istanbul, he worked as Equity Sales at HSBC in Düsseldorf from 2012 to 2020. There he looked after institutional investors in Germany and abroad with a focus on the telecom, media and technology sectors. He studied business administration at the Munich University of Applied Sciences and is also a qualified banker.
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