Back in March of this year, somebody posted a table of how sectors of MF RB picks have performed in average return against the market, since the MF RB service began in 2004 (as of market close on Mar 2 of this year). Now my post isn’t about MF RB or their picks, but about sectors. And I don’t remember where I saw this (it was back in March as I said) but I copied part of it at the time, including the table. Remember that the results below are from 2004 to Mar 2nd of this year, but have not been brought up to date.
Results varied from 12 picks in Food and Beverage, beating the market by 128% on average, and 18 picks in Health Care Technology, beating it by 104%, down to 7 picks in Energy, trailing the market on average by 85% !
However, what I want to focus on is Communication Equipment (aka the Semiconductor Industry), including several stocks that we’ve talked about, including stocks such as Ambarella, NXPI, Infinera, and Skyworks. This sector has trailed the market by 60%! That’s a bunch! And not a single one of the 15 RB picks had beaten the market! Not one! Now this isn’t because of rotten picking (they were RB picks after all), but this reflects something about the sector!
Now I’d like to compare this with Internet Software and Services (which category is pretty self-explanatory). There have been 41 picks from this sector, and those 41 picks AVERAGED beating the market by 47%.
I hadn’t thought about this table since March, but I guess I must have been reacting subliminally to the same observations. The Semiconductor Industry is a tough playground, and when you compare trailing the market by 60% to beating the market by 47%, you can see why I have exited Ambarella and Infinera, passed on NXPI, and have been reducing my position gradually in Skyworks, while gradually building up positions in internet software stocks like Salesforce, Shopify, PayCom, PayPal, etc. Granted three of my biggest four positions are in homebuilding, shoes, and banking, but the fourth, Amazon, qualifies as internet services in both internet retail sales, and in its cloud services.
As I see it, the big differences between these sectors is that a chip provider makes a physical product which may become commoditized, and it has to wait each quarter for orders to come in, or not come in, from large customers who may consider them expendable, while an Internet software-as-a-service company has that money coming in quarter after quarter, predictably and almost guaranteed, and usually from hundreds of customers. A customer can’t practically say “Oh, another supplier is a little cheaper this quarter, I’ll switch my whole system to them.” A semiconductor company has to really excel to succeed, while an Internet services company has it considerably easier.
Hope you found this interesting.
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