• The Google dilemma: Privacy vs. convenience…
  • How we’ll hedge against inflation…
  • Can we time the market?

Dear Reader,

Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.

If you have a question you’d like answered next week, be sure you submit it right here.

And before we turn to today’s questions, I want to mention an exciting development…

NASA’s Perseverance rover had another major milestone on Mars yesterday. It produced oxygen from the atmosphere.

Perseverance Rover

Source: Space.com

One of the key instruments on Perseverance is the Mars Oxygen In-Situ Resource Utilization Experiment (MOXIE). Its purpose is to convert the Martian atmosphere, which is rich in carbon dioxide, into oxygen.

And that’s exactly what it did.

In its first test, it was able to produce about 5 grams of oxygen, which is about 10 minutes’ worth for an astronaut.

What’s exciting is that it can be done. And it can be scaled.

We can imagine launching an oxygen-producing plant in advance of humans arriving on Mars. It could conceivably produce oxygen for months or years in order to build oxygen stores that can be used for both life support and fuel for launching payloads back into Mars orbit and eventually back home to Earth.

These are small steps, but they are exciting nonetheless.

Now let’s turn to our mailbag…

What’s the real use case for AI assistants?

Let’s begin with a question on Google’s AI assistant, Duplex…

Hello, everyone at Brownstone. I am a Brownstone Unlimited subscriber; I really enjoy your investment analysis, and I share your excitement about technology 95% of the time. But I don’t share your excitement about Google’s Duplex, and I’ve seen Google’s presentations. By the way, I’m a software engineer with decades of experience. I have some educated opinions about human-computer interaction.

Google puts a lot of marketing hype into its demos. They need to distract you from the fact that Google is trying to collect every single piece of information about us so that they can ultimately sell it to advertisers.

Brownstone just noted that Android phones collect 20 times more data than iPhones. That’s why your excitement about Duplex seems contradictory.

When Apple builds something similar to Duplex, would it also need to track 20 times more data than it used to? Will both Google and Apple start tracking even more data to fully support Duplex capabilities?

There’s no way that I’m giving Google all of my tax information so that Duplex can do my taxes. There’s no way I’m giving Google my health information so that it can schedule doctor’s appointments. Which use cases remain? Haircuts and restaurants?

My professional opinion of the scheduling use case is that it is better handled with visual interfaces (apps or web). Users can visually verify the details of the appointment much faster than stepping through them in a conversation. Have you ever used OpenTable?

And why would I have Duplex call someone when I can simply call them myself? Are people really so busy that they can’t use an app or make a phone call for a few minutes? Why risk Duplex making a mistake? Or have we lost the ability to enjoy a simple phone interaction with another real person in our community? And groceries? Alexa already does that.

Don’t be foolish. This technology will be used to automate call centers. Best Regards,

 – Joe B.

Hi, Joe – thanks for being a lifetime subscriber. It’s great to have you with us. And you’ve brought up an important topic…

As a refresher, last week, we discussed the latest progress Google has made with its AI assistant, Duplex. This bleeding-edge artificial intelligence (AI) can carry out conversations without people ever realizing they’re talking to an AI. The AI even “uh-huhs” and “mm-hmms” in conversation just like a real person.

And it’s capable of scheduling appointments, ordering groceries, making restaurant reservations, and much more. AI assistants will help us recover the lost time we usually spend on hold waiting on a customer service representative or doing other menial tasks.

I am very excited to see these kinds of AI assistants reach the mass market. We’re going to see that start happening this year.

But you’re exactly right that Google’s real aim is to collect our data with its assistant. As I’ve written numerous times here in The Bleeding Edge, Google doesn’t do anything unless it furthers its goals of amassing as much data on users as possible. This drives Google’s entire business… advertising revenues.

The company generates over 80% of its annual revenues from data surveillance of consumers like us. That’s a conflict of interest that can’t be removed without changing Google’s whole business model.

The bad news is… Duplex will just be one more arrow in Google’s quiver. It already tracks anyone who has an Android phone… or who uses its Maps or Waze apps to navigate, its Gmail service for email, its Google search engine for queries, or YouTube to watch videos.

This is why I’ve recommended readers opt for Apple’s iPhone and alternatives like DuckDuckGo’s search engine. It’s not a perfect solution, but it’s a step in the right direction.

But to address your question specifically, it doesn’t have to be that way. Google doesn’t necessarily need to collect the data to be useful.

For example, “Hey, Google, make a haircut appointment at Wave Salon with Debbie at 2 p.m. on Friday the 13th.” Google wouldn’t have to know everything about us to do its job because the instructions were very specific.

You raise another interesting point about your own personal preferences and your thoughts about the importance of community interaction. This is something that I have to think about often as an investor and analyst, but not in the way you might expect.

One of the biggest biases that we can have as an investor is falling into the trap of believing that something won’t be a success because “I wouldn’t buy/use/do that” or even “People shouldn’t behave that way.”

This is a common pitfall in missing out on fantastic investment opportunities. It doesn’t matter if you or I would use a product or service… What matters is what the other 7.9 billion people on the planet will do. Which demographics will use the product or service? How rapidly will its use grow?

There are some products and services that are terrible for society, yet I know that they will be incredibly successful. I always ask myself not what I think as it pertains to my life or beliefs. Instead, when I am analyzing technology and companies, I ask what others will think.

And the real question here is determining how much of our modern conveniences we are willing to forgo to protect our privacy. There isn’t really a middle ground. It takes extreme measures to maintain privacy, and even then, our personal information is still not really secure.

One thing that I am absolutely sure of is that most consumers will opt for the convenience Google Duplex and other soon-to-be digital assistants will provide…

Already, surveys have reported that nearly two-thirds of people would switch to a company that offers text messaging rather than requiring phone call communication.

60% of respondents said they’d rather schedule their hair appointments by text, and over 70% said they’d prefer a vacation rental manager who texted them with updates and instructions instead of calling. 75% felt the same about a ride-hailing service texting rather than calling when they arrived to pick them up.

The point of these numbers, of course, is that – for better or worse – most of us dislike having to make phone calls for these kinds of transactions. So we can imagine how attractive it will be to even avoid the need for texting – we can simply instruct our assistant to handle the details for us.

One final point… as I wrote the other day, we can expect to see other companies hot on Google’s heels in this area. While Google has proven to be a poor steward of our data, companies like Apple and Amazon have much better track records. I’d be much more comfortable using a digital assistant from one of these companies.

Inflation’s effect on our portfolio…

Next, a reader wants to know more about how to hedge against inflation…

Jeff, I’m a Brownstone Unlimited member. I wish I had come on board sooner because your services have proven worth every penny. But aside from the financial gains, I very much enjoy reading all of your detailed insights into all of the sectors you cover. You have a gift for making all these wondrous technological advances understandable.

My question, though, is more fundamental. Given current monetary policy, if inflation starts to rise, in general, how will it affect our Brownstone portfolio?

I understand how $100 in savings is diminished. But will our investments follow the same math? Or will good investments provide any hedge against inflation? Thanks again!

 – Ken J.

Hi, Ken. I’m glad to have you with us at Brownstone Unlimited. And I truly appreciate the kind words. I work hard to make the topics we discuss accessible to a wide audience.

As for your question… I deeply share your concerns about inflation. The reality is that the U.S. is going to find itself in big trouble. The real question is when. I suspect that it will take longer than we think.

I remember the Obama administration. It printed $10 trillion over eight years. The sum was nearly impossible to imagine. It was a larger amount than every single presidential administration combined… in history.

Yet what happened? It was a perfect storm for gold, a traditional hedge for inflation. Did it go to $10,000 an ounce?

Not even close. Gold didn’t even break $2,000 an ounce.

Now here we are again. And from what we are seeing, the U.S. will probably print $10 trillion in less than three years, or maybe even two. And it is going to cause some serious inflation.

You’re right to be asking about the impact on investments. Every smart investor, regardless of whether or not they believe national debt matters, should be thinking about this.

When interest rates do start spiking, it will cause a short-term market crash. And rapidly rising interest rates result in two critical effects.

First, valuations will quickly start to compress. A company that is valued at an enterprise value-to-sales ratio of 14 might compress to 7 in a matter of weeks. That would roughly halve the share price.

Second, money will quickly shift out of equities and into fixed income markets. If funds can make 5% basically risk free on fixed income, they will lever up and make a fortune. It’s the easy trade. Net outflows of equities will contribute to falling share prices.

I foresee a period of time where we’ll look to take a lot of profits off the table across many asset classes. We’ll step aside and let valuations compress. And then, when the dust settles, we’ll step in and be a buyer of the highest-quality names that still have fantastic growth potential even in an inflationary environment.

The key is for us to be invested in sectors and companies that are growing far faster than the rate of inflation. That way, we can still significantly outperform the markets and generate substantial real returns.

And investors will also be able to benefit as I expand my research services this year. I have several projects in the works that will continue to help us diversify and expand our investments with Brownstone Research. And as a lifetime member, you’ll gain access to these products as they are revealed. So stay tuned…

Sell at the peak, buy at the trough?

Let’s conclude with a question about timing…

Has there been any thought to leveraging the valley between peak one and peak two in the stock price pattern depicted in the Exponential Tech presentation?

Sell at or near peak one, buy back at or near the valley price between peak one and peak two with the same dollar amount sold at peak one, then ride the larger number of shares to the second peak? Has that been modeled? Thanks.

 – Stephen S.

Hello, Stephen – thanks for sending in your question. There’s some nuance to my answer…

First, we do occasionally exit and reenter positions in my research services. I can easily think of a dozen or so instances where we have chosen to take profits on one of our portfolio companies and then wait for a good reentry point.

For example, back in 2016 in Exponential Tech Investor, we invested in a cloud communications platform called Twilio. Four months later, we sold for a 239% gain when the stock experienced some volatility, which made it a good time to take profits.

Then, in 2017, Twilio’s stock price dropped due to investors getting spooked by some news in its Q1 earnings announcement. But I knew that the market had overreacted. Twilio was still a great company. We took the opportunity to enter a new position, and we were able to sell for a 211% gain in late 2018.

So yes, there is certainly the opportunity to profit using a strategy of exiting and reentering positions.

However, I’d issue a word of caution. I would encourage investors to avoid trying to perfectly time the market. I’ve never met anyone who could exactly time exit and entry points over and over again. And I’ve seen a lot of people go broke trying.

When I issue buy recommendations, I do so with a time frame and investment thesis in mind. Generally, in Exponential Tech, we are looking for long-term capital gains so that we can take advantage of lower tax rates and allow time for the investment thesis to play out. That means we plan to hold positions for at least a year unless our investment thesis changes or market conditions warrant selling.

And in most cases, we don’t want to sell a company that still has big upside ahead and risk missing out. We’ll succeed by picking great companies on the cusp of exponential growth and holding until the thesis plays out.

And, of course, I’ll always issue alerts whenever it is time to take profits on any recommendation I make.

If any readers would like to join us at Exponential Tech, you can go right here to learn more.

That’s all we have time for this week. If you have a question for a future mailbag, you can send it to me right here.

Have a great weekend.


Jeff Brown
Editor, The Bleeding Edge

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