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  • 📈 Why does Big Tech get so cheap so often? | Thought Starters

📈 Why does Big Tech get so cheap so often? | Thought Starters

A collection of our favourite articles from the past week

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Money is stressful. And the more time you spend on your finances, the more questions that arise. Am I doing enough? Am I saving enough? Investing enough? Will I have enough?

Even after building Equity Mates for the past six years and interviewing hundreds of experts on the podcast, we still ask ourselves these questions all the time.

So we set out to write a book and answer these questions. What we ended up with was an outline of the absolute simplest way to invest and importantly, why we are confident that it was enough.

In Don’t Stress, Just Invest we step through the practical ways you can figure out how much you need to invest, set up an automated investment portfolio, and decide what assets you should invest in.

Why does big tech seem to get cheap so often?

Here’s something that would surprise a lot of people: every few years we have the chance to buy one of the Big Tech companies on the cheap. In the mid-2010’s it was Apple (we remember interviewing deep value investor Tobias Carlisle in 2017 who mentioned Apple had been turning up at the top of his deep value screens which, in hindsight, was around the same time Buffett was buying). Last year, Meta got stupidly cheap and has more than doubled in price since then. No one believes these companies are bad businesses. So the question becomes, why are they getting so cheap so often?

Andrew Walker, author of Yet Another Value Blog and recent guest on Equity Mates (Apple | Spotify | Website), has written a blog post asking this question.

“Just about every major tech company has gotten really cheap at some point over the past decade. And not cheap in a “it’s only trading at 20x P/S and peers are at 30x” sense, but cheap in an absolute sense… AAPL and MSFT trading for ~10x P/E in the mid and early 2010s (respectively), but just last year you had the chance to buy META at ~10x P/E with net cash on their balance sheet and/or GOOGL + NFLX at mid-teens P/E.”

Andrew’s view is that despite how dominant these businesses are today, investors get worried about how durable their moats are (and therefore, by extension, how dominant these businesses will be tomorrow). Can Facebook maintain its network effect in the face of new social media competitors like TikTok? Can Apple keep growing when iPhone sales are slowing? Can Netflix retain its lead in the face of more and more streaming competition?

These concerns are not without merit. The history of the stock market is a history of once dominant businesses being disrupted. That process of creative disruption is what drives the stock market ever higher. And one day, Google, Apple, Facebook will lose out to a new generation of great companies. But until that day comes, we should remind ourselves that we don’t have to find unknown companies to make great returns in the stock market. Every few years a very well-known company will spook investors and get very cheap. If we can keep our head in those moments we might see an opportunity like Meta, which is up almost 250% from its November 2022 low.

What Happens When Private Equity Buys Your Doctor's Office?

Over the two decades there has been a flood of money moving into private equity.

Private equity companies are then tasked with finding places to deploy this capital. Which has led to a flurry of deal making. Some PE firms have focused on buying large listed companies and taking them private. Last year in Europe, delisting transactions involving private equity firms nearly doubled to $78 billion, up from $40.7 billion in 2021. Other PE firms have targeted earlier stage companies and have moved more into venture capital. According to Pitchbook, in 2021 private equity firms participated in more than half of all US venture capital deals (measured by value), up from just 37% in 2019.

However, there is nothing private equity likes more than a rollup. Acquire a number of independent businesses in the same industry, merge their back office and supply chain operations, improve their margins, use those margins to borrow more, acquire more and grow. Private equity has rolled up everything from dentists to storage units. And the financial returns often are pretty good.

However, a new review of dozens of international studies focused on private equity rollups of healthcare facilities shows the first large-scale evidence that private equity takeovers are associated with rising costs and sinking quality of care.

These findings are American, we should be clear. The experience with private equity isn’t universal and healthcare regulations in Australia and Europe are certainly better than in the United States. And some of the most successful rollups in the healthcare space have been successful because they free medical professionals from the task of running a small business and allow them to focus on patient care (for an example of a company trying to do this, listen to our interview with the CEO of Pacific Smiles, Phil McKenzie - Apple | Spotify | Website).

However, these findings are a sobering reminder of the challenges of increasing private equity ownership. And between nursing homes, fertility clinics, doctors and dentists, there is plenty of attractive opportunity for private equity in the healthcare space. It is a reminder that government policy needs to keep pace with the changing healthcare landscape to ensure well-trained staff and good patient outcomes remain the priority.

Can AI replace actors? Here’s how digital double tech works

On the day this email hits your inbox, we are 104 days into the Hollywood writers strike and 31 days into the Hollywood actors strike.

One of the sticking points in the actors’ strike has been digital doubles. According to the Screen Actors Guild, the Hollywood studios want to pay background extras for one day of work, scan their bodies and then digitally recreate them as background characters in future movies and shows. The kicker, those extras wouldn’t be paid each time they were digitally recreated in future productions. They would just be paid for the one day they came in and had their bodies scanned. To date, the Hollywood studios haven’t confirmed or denied these claims.

It is a pretty bold play by the Hollywood studios. Our two cents: the reasonable middle ground is to allow digital recreations but to require the actors’ permission first (so they can control what they’re appearing in and associated with) and pay them each time their digital recreation appears. Hollywood still saves money and time on set, actors don’t see their image and likeness exploited.

But the technology that has enabled digital recreations is also a story worth exploring. Because it is another instance of generative AI moving beyond the chatbot and developing real world applications.

The world pre-AI, actors had to do intensive sessions in giant photogrammetry booths where they would have to strike every pose and do every action. All the while hundreds of cameras were capturing it for every angle. This process was required to allow production teams to edit dialogue and action post-filming, to take a group of 100 background actors and make them a cast of thousands and was also heavily used in video game production.

The power of generative AI is it can recreate the data it has been trained on. So if a AI model watches hours of an actor walking and talking, it can then generate realistic footage of an actor saying a new phrase or appearing in a new scene (essentially deepfaking the actor).

This article explains the leap forward in this technology and what it will mean for the future of Hollywood films and the background actors that appear in them.

This article has been sponsored by Syfe

How Syfe’s smart “investing system” helps new investors build better portfolios in 2023

For new investors, knowing where to begin their money journey is half the battle.

From understanding the basics of investing, to finding something you actually want to invest in and that is aligned with your goals, getting started investing can be overwhelming.

This is exactly why they launched Smart Baskets on the Syfe platform. To learn more about how Syfe are aiming to bring cost-effective access to a portfolio of stocks and ETFs created by wealth professionals to all, check out the article they’ve published on the Equity Mates website.

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