Watts Wealth

Resarching ASYMmetric investment opportunities

“Be EARLY & BE PATIENT”

My Ikigai

Ikigai is a Japanese concept referring to something that gives a person a sense of purpose and reason for living. Everyone should have their own “Ikigai”. It turns out that mine is “Investment Research”.

My personal self-assessment of “what I’m good at:”, “what I love”, “what the world needs” and “what you can financially be rewarded for” … investment research and analysis ticked all the boxes.

Ever since finishing school, the one constant of what I enjoyed doing was “researching and investing”, and so focusing my time and efforts in this area of expertise makes sense.

Identifying Asymmetric Investment Opportunities

My investment research thesis is that investment markets are inefficient, that can lead to amazingly positive risk reward opportunities to exploit.

Very few take the time or have the understanding to deep dive into investment rabbit holes that can provide the financial outcomes that can create ultimate financial independence and associated lifestyle enjoyment.

Most investment decisions and strategies employed today are based on someone else’s research or opinion.

Exchange traded funds or passive index investing has largely replaced genuine wealth management, encouraged and driven by risk management at the expense of investor financial outcomes.

Today’s investment management is therefore very much dictated by “what is available and what is safe” as opposed to true fundamental investment analysis.

Investors stay clear of what they do not understand and because financial markets are so complex. As a result, there is a world of investment opportunity that is simply avoided.

A prime example of risk management dictating portfolio construction is the “advice industry” and the fact that 10 years on from Bitcoin, Blockchain and Cryptocurrency creation no-one (at least in Australia) is able to get investment advice from this not-so new asset class. You are left to your own investment devices to participate in this sector and because the majority of the public are unwilling to educate themselves on the topic, this investment opportunity will continue to be wasted.

Research History of Investment Trends & Themes

Disruptive investments are an opportunity that take years and decades to play out, but most investors wait for the theme to be adopted by mainstream before investing, which is typically too late.

“Being early and being patient” is what is required, after thorough “research and analysis” identifies the opportunity and investment conviction keeps the investment long term.

Society changing disruptive investments are rare. They are like “finding a needle in haystack”. Many seemingly “potential” opportunities will come and go. Many get hyped and then fail. It’s the research that is important to separate the wheat from the chaff, and even the most well-research opportunities can still underperform or fail due to uncontrollable risks of “finance and funding” or “government policy” or “industry (competitor) influence”, and so there is a little investment luck that is also required to be successful in this space.

The Cloud (2013+)

With ever-increasing use of internet by business and individuals, “the cloud” offered offsite outsourcing benefits of scalability, flexibility, cost efficiencies, improved data security, automation etc … that has led to its mainstream adoption.

From an investment point of view, there were some “early service-provider adoptors” that created “first mover advantages” growing and capturing increasing market share, while their competitors were stuck doing things they always used to do, losing business until they ultimately caved into the business idea “if you can’t beat them, join them” by which stage it was too late.

Here’s a look at two ASX listed businesses that Watts Wealth (personally and a few clients) benefited from.

Software subscription as a service (SaaS): Xero (XRO)

As an accountant I remember MYOB annual software updates and double-entry accounting. Xero comes along in the early 2010’s with its cloud-monthly subscription and single entry accounting that revolutionised how accounting firms undertook compliance and consulting work. Xero gained market share in New Zealand, then dual-listed on the ASX and took over Australian accounting, followed by Europe and US expansion.

The key to investing in Xero was soon after ASX listing (approx $4, Nov 2012) when it wasn’t well known, when it had an unproven disruptive business idea in its early years of financing its future growth. It’s share price then followed cloud software adoption escalation, achieving $150 share price a few years ago.

Infrastructure subscription as a service (Iaas): NextDC (NXT)

Data Centres have disrupted how internet data has been stored and secured for over a decade and today (with the evolution of AI) they are still growing stongly as enterprise digital infrastructure demands grow.

NextDC was one of the first to start building centres in Australian cities, expanding in number (Australia wide and now Internationally), also expanding rack space and services within each centre.

Electric Vehicles & Commodities (2020+)

Another successful investment theme was the Electric Vehicle (EV) sector.

There has been scrutiny on oil production and its (perceived) environmental and scarcity attributes, that created demand for EV’s, encouraged by government (through subsidies and financial incentives) and facilitated by vehicle manufacturers via R&D and eventual EV rollout.

The Watts Wealth investment play was not in the car makers themselves, being capital intensive, high volume low margin businesses, but instead “the metals” that made up an EV battery.

EV (Lithium-Ion) batteries and their make-up were and still are developing, as research is undertaken into superior longevity, cost, safety, car performance etc. But what has been consistent within the battery ingredients needed, has been the resource requirement of “lithium”.

Watts Wealth research deep dived into the future of EV’s and their expected growth and replacement of petrol and diesel fuelled vehicles back in 2020, creating an EV investment whitepaper filled with research and analysis into this disruptive investment opportunity.

EV Metal Lithium: Pilbara Minerals (PLS)

The standout ASX listed EV metal within the research was lithium producer Pilbara Minerals (PLS). From 30c at the time of the EV paper to close to $4 today … it has been a reasonable 10x+ ROI in less than 4 years.

Crypto & Blockchain (2020+)

I must admit, I too was a Bitcoin sceptic during its infancy back in 2016-18, until (once again) “research and analysis” confirmed its future growth and adoption.

A personally prepared Bitcoin whitepaper was also finalised in October 2020, but unable to advise clients of crypto opportunities, this paper had to be saved for personal benefit only.

With more than 10 years of growing investment adoption at individual, corporate and government (country) levels, Bitcoin and cryptocurrency as an asset class de-risked to a level that I was comfortable investing in.

The core reason for investing in Bitcoin to me was the “inflation hedge” (currency devaluation, excess money printing) reason. With fixed supply and increasing demand, supported by technical charts (see below) that looked attractive, Bitcoin (even at $13,000 USD) seemed worth investing in.

Back in 2020 I predicted that corporates, pension funds and high net worth individuals would find its way into Bitcoin, a forecast that is proving right, supported by recent considerable Bitcoin ETF capital inflows.

Regulatory acceptance and clarity is helping institutions with their comfort of investing in crypto, and so Bitcoin has transitioned from a “speculative and risky” proposition to one that is “proven and de-risked”.

Researching Future Investment Trends & Themes

So what is Watts Wealth focusing on today? What are today’s undervalued disruptive investment themes that will change our world tomorrow? DeFi, AI & Energy

To find out more about Watts Wealth Research into these and other opportunities, simply email aw@adamwattswealth.com

Decentralised Finance (DeFi)

Hopefully by now you have heard about DeFi, a growing financial system of blockchain technology and smart contracts, providing a more open, accessible and transparent system that is providing cost benefits and transaction efficiency. Financial institutions around the world are transacting under a new electronic data interchange standard called ISO20022 and its changing “finance” for the better. ISO20022 compliance has facilitated a growing eco-system of cryptocurrencies designed to help banks, business and individuals transact, and its this ecosystem that you should be learning more about.

Artificial Intelligence (AI)

AI technology continues to expand at a rapid pace, with an expected 36% annual growth rate (CAGR) in AI spend across services, software and hardware from 2024-2030.

AI is so much more than ChatGPT. Just ask Nvidia whose website informs us that “AI is powering change in every industry. From generative AI and speech recognition to medical imaging and improved supply chain management, AI is providing enterprises the compute power, tools, and algorithms their teams need to do their life's work”.

The future of AI is largely priced into listed companies like Nvidia, with a $2.6 Trillion dollar market cap, but there are many other AI infrastructure plays or service providers that are “flying under the radar” and its these that have the potential to achieve life-changing returns.

Energy

So knowing that the world is going to need increasing “power” to charge your EV, energise expanding Data Centres, power AI computing power needs, where do you think this “Global Energy” requirement” is going to come from?

There are going to be “short term” and “long term” energy sources to assist with what some are claiming to be the “Next Industrial Revolution”.

We know “renewable energy” and “low carbon emitting” energy sources will be favoured over Coal and Oil and Gas based energy. But which ones and is there adequate investment upside that deserves your investment attention?

Watts Wealth has identified three energy-thematic disruptive investment opportunities, that have all been around for over a century that has present-day and future demand/supply imbalances that make them extremely lucrative.

Conclusion

In summary, it is investment research that creates investment understanding, opportunity and conviction, that if acted on with patience, over-time has the potential to considerably financially reward you.

This is what I’m doing for my family, and if you are not “too busy” to learn and read about “disruptive investment research", express your research interest at aw@adamwattswealth.com