Goose Bump Stuff

John Grisham once said in an interview that one of the keys to being a successful author is to write about topics you know a lot about.  He has a background in the law hence his books about lawyers and law firms.  Sitting next to him during this interview was Stephen King.  Grisham joked that one can only wonder what goes on inside the mind of Stephen King…

During a typical day in my world, I read, write, and think about the markets, politics, and the ebbs and flows of the overall economy.  It’s what I know, or at least am supposed to know.  But for this edition, I’d like to begin by highlighting two fascinating stories of scientific discovery, in areas in which I have very limited understanding.

A recent article in the Wall Street Journal described how researchers at Stanford University recently introduced the first computer built entirely from carbon nanotube transistors.  This is an important discovery as the electronics industry approaches the limits of conventional silicon transistors, essentially the brains of existing computers.  Carbon fibers are incredibly strong and carbon nanotubes are 10,000 times thinner than human hair.  Computers based on this exciting new technology will potentially have much smaller components requiring significantly less energy to run.  Scientists and engineers working in labs around the world are producing ever more powerful computers using less and less energy, a critical dynamic that will drive the future of the electronics and technology industries.

In the same edition of the WSJ, there was another interesting scientific breakthrough where a man, “successfully controlled movements of a motorized artificial leg using only his own thoughts.”  This incredible technology may be a life-changer for the more than one million Americans who are living with amputations.

Scientific research and discovery has always been a fascinating component of our country, from Benjamin Franklin to Thomas Edison, to NASA to Nanotechnology.  Driven by our innate curiosity and astounding collective brain power we are always one discovery away from exciting new products, companies, and industries.

There is great hope in this never ending quest.  It means we are never stuck where we are, as individuals or as a country.  Essentially, we can think our way to a better way.  Yes, it takes perseverance, courage, and resourcefulness to battle through the inevitable obstacles that emerge during the process, but what exactly, isn’t possible?

The American journey is really imagining the impossible and then pursuing a solution with dogged determination until one is found.  Shooting for the stars and hitting the peaks of the mountains is at the core of the American psyche.  For me this is goose bump stuff.

From a portfolio perspective, we try to incorporate this enduring hopefulness by searching for companies which continually strive for excellence.  Many industry-leading companies stay at the top because they are constantly looking for ways to improve, while competitors lose their edge.  Harnessing technology, driving innovation, and improving efficiency, are all areas of primary focus for successful, well-established companies.

At the same time, it is important to also own emerging companies with leading-edge technologies in above average growth areas.  We typically focus on the Health Care, Technology, and Industrial sectors to find the next generation of leading companies.  In addition, given that these three sectors represent over 40% of the S&P 500, it is important to monitor potentially disruptive technologies and how they may impact the current industry leaders.  This combination of established success and emerging success within an equity portfolio provides outstanding potential for sustained long-term growth.

The overall domestic economy is growing very slowly and has been for several years.  Based on recent trends, I do not envision economic growth will improve much over the next few years.  Despite this sluggish macro picture, there are pockets of growth in our diverse economy.   However, identifying sustainable growth stocks, in this frustratingly slow overall economy, and buying them at a reasonable price, is no easy task.  Just as precious gems are highly priced because of their scarcity, so too will growth stocks command higher valuations.  But through insightful, yet patient research, and disciplined valuation analysis, undervalued growth stocks can be identified.    For me, this too, is goose bump stuff.