In the last half of the 1990’s investors fell in love with internet stocks. Companies with no earnings were accorded billion dollar valuations because of their potential to change the way business is conducted. After years of failing to live up to that potential, investors lost patience and the internet bubble burst in 2000. Fast forward 17 years and the internet is making it possible for new companies to overtake the leaders of the old economy. The internet is finally living up to its potential and investors should take notice.
When the internet bubble burst, there were dozens of internet mutual funds. Today, the category has been absorbed into Technology sector funds as internet fund managers gave up.
Tony Mitchell is one of the few internet fund managers who did not give up. Since starting his internet fund at Marketocracy in October of 2000, he has averaged 17.46% a year which compares very well to the S&P 500’s return of 5.37% for the same period. Over the past 10 years, his 21.84% average annual return beats the top performing mutual fund manager in Morningstar’s database. So far this year, he is up nearly 25%, more than double the S&P 500’s return.
How did Tony do so well in a part of the market that so many fund managers have abandoned? In short, he avoided stocks with no economic reason to exist. In some cases, this hurt his returns as it kept him out of stocks like Amazon and Google in their early years. But it also kept him out of pets.com, space.com, and a whole host of first generation internet companies that no longer exist.
When you look at the big changes in industry leadership over the past 17 years, it is clear that the internet has been behind the changing of the guard in many industries. Here are a few examples where the internet is still changing the economics of an industry.
Retailers
Who would have guessed 17 years ago that Amazon would become the threat to Walmart, BestBuy, Macy’s, Sears, and enough other retailers to put the future of shopping malls (and the REITs that invest in them) in doubt?
The traditional retailers used to have a legitimate complaint that Amazon had an unfair advantage because they didn’t collect sales taxes. But Amazon has become an even more formidable competitor since it began collecting sales taxes, proving that customers place a high value on the online shopping experience that goes well beyond any tax savings.
News Organizations
In 2000, it was already clear that newspapers needed a new business model. As more and more people got their news from websites, advertisers started placing ads with companies like Google that steered pageviews, not the companies that wrote the articles.
A few media companies that reach a broad audience like Forbes, the NY Times, and the Wall Street Journal have survived the seachange and even thrived. But no one foresaw how companies like Twitter and Facebook would make it possible to bypass the major media companies entirely to obtain news that reflects a non-mainstream point of view.
Entertainment
A long time ago there were only 4 major channels through which all TV was broadcast. Then cable companies like Comcast established an alternative way to distribute TV. Now, companies like Netflix and Amazon are bypassing both broadcasters and cable operators to change the way we pay for the shows we want to watch. No longer do we have to pay for 500 channels most of which we don’t watch, or spend about 25% of our TV time watching commercials.
Investing In Today’s Internet
Investing in the internet today is not as risky as it was during the internet boom. The winners of the first generation of internet companies have established business models that can be applied to many other industries, and it is clear that the winners will create tremendous value for their shareholders.
Internet stocks are still regarded as aggressive and risky investments. But, I think the risk is reduced when you have a manager who has stood the test of time and come out on top.
Tony Mitchell’s internet fund is not a mutual fund. It is an investment option for clients of our separately managed account program. Before choosing an investment manager, you should always check out their track record. Here is Tony’s. For information about investing with Tony, click here.
I believe people should have to prove themselves before they can manage other people’s money and the best evidence of investment skill is a track record. For more information contact me.
[“Source-forbes”]
