It’s always something of a fool’s errand to try and predict what will happen in a coming year, as prices should only really move with surprises, not with predictable events. The “when” is usually the bigger question than the “what”: the insightful 2014 book “Prisoners of Geography”, was unnervingly correct about the how, what and why of the Ukraine war - just how were we going to be able to guess that the "when" was to be February 24th 2022.
We know we will emerge from recession. Obviously things will get better then (you can tell it’s only January, I am still glass half full). After surviving in property during the negative equity slump of the mid 90s, in my 23 years of tech equity research since, I’ve seen the slumps of 2000-2002, 2008, and the mini dips in between – plus the unreasonable exuberance peaks including 2005, 2020/2021, and the foothills between them. We know they come and go, and we know Mark Twain was right: history doesn’t repeat itself, but it does often rhyme.
We expect the following influences on small cap tech, as I should hope everyone else is predicting: easing of tech salary pressure (with 400% achieved in multiple reported anecdotes in 2021); easing of component shortages; slowing sales cycles (gosh I can’t remember when that hasn’t been used as an excuse in the last five years – surely there’s a limit!); cost cuts or reallocations. Inflation and recession shuffled out of the shadows after so many years lurking in dark memories, and interest rates suddenly hurt again. But... as with every new economic circumstance, every day means the market gets a little more used to it. Equity must surely be the better option, once valuations settle, as small cap is less amenable, therefore less exposed, to debt gearing. The constant drivers of regulation and automation will continue to provide sources for growth.
Tech innovation of the like to feature at CES (Consumer Electronics Show) in Vegas takes a while, if ever, to go mainstream, but other innovations do appear and change understanding. This year will be the wider awareness of the epitome of automation, Artificial Intelligence (AI), once you, the investor and consumer, can see it in action. ChatGPT (link), if you haven’t already seen it, is impressive.
Here is the outcome of asking it to write a poem about a profit warning in the style of John Cooper Clarke: (read it in your head in his strong monotone Manc accent, or listen to his style first here:
It's a warning, folks, and it's no lie,
Profit's down and the future's looking dry,
The shareholders, they're starting to cry,
And the boss man's gonna have to fry.
The figures don't look good on the page,
The market's in a state of rage,
The analysts, they're starting to gauge,
Just how bad this little outrage.
The workforce, they're starting to feel
the pinch of the company's dire deal,
The redundancies, they're starting to reel,
In the face of this corporate ordeal.
It's a warning, folks, and it's no game,
The company's taking a hit in its name,
But don't you worry, don't you feel shame,
We'll weather this storm and rise again.
Or if you’re more serious try “describe the basics of a corporate cybersecurity environment”. Probably more useful here, and a little bland, but highly informative.
So we’ll sift through the flying cars and brain implants ideas that pop up every year; we’ll come up with our top picks in Tech (which are Craneware (picked by Lorne); Redcentric (me); and LendInvest (Michael)) as real world successful application of commercial ideas; but we are now excited that AI is suddenly so very easy to explain, as we can all play with it. It’s the same logic as our finnCap Tech Hub Demo page for our corporate stocks – see it in action and it all makes sense.
Happy New Year and Happy Friday