Pass the Popcorn and Profit Off the Madness

By John Del Vecchio  |  September 7, 2018

Stop me if you’ve heard this one: The Russians are coming! The Russians are coming!

But what if the Russians aren’t coming at all?

What if…

they were already here? [Cue thunder and lightning]

I’m kidding. Mostly.

Major technology companies like Twitter and Facebook seem to trudge regularly up to Capitol Hill to testify before Congress. The topics of discussion include foreign disinformation campaigns, content monitoring, and behind-the scenes-algorithms that, depending on who you ask, either suppress free speech or allow for the rampant proliferation of hate and bigotry.

Of course, once these executives opened their mouths, the stocks tanked. The Nasdaq took a spanking on Wednesday and Thursday. It just goes to show how sensitive this market has become. It may be only short-term, but it could also be the start of people bailing out of tech stocks before asking questions later.

The same thing happened just before the Internet Bubble popped when Microsoft came under scrutiny for possibly violating anti-trust laws.

We’ve already seen some wonderful political theater around Twitter CEO Jack Dorsey in the form of Republican Representative Billy Long from Missouri drowning out a protestor by turning into an auctioneer.

I’m sure more is to come regarding the extent to which foreign governments meddled in elections, as well as how certain politicians are treated “unfairly” on social media.

And expect more sabre rattling about regulation (and about everything else, probably).

Beyond just Capitol Hill, there’s been a backlash against big technology.

It was big news when we found out Google still tracks your whereabouts even if you think you had turned those features off on your device.

Generation Z, those born after 1994, have taken an axe to their social media usage. A study by a firm called Origin found that 34% have eliminated social media while 64% are taking a break. Not a good trend for social media companies whose product is you and your activity. Over 40% said they wasted too much time on social media while 35% said there was too much negativity.

Who knows, we might get back to the days of people writing on paper and reading real books! Oh, the horror!

Personally, I recently stopped reading books on my device and started buying paper versions again. There’s something appealing about the smell and feel of an actual book.

Technology regulation isn’t just confined to the United States. France recently passed a law that bans the use of mobile phones, tablets, and smart phones in French primary, middle, and junior high schools for students up to 15 years old.

Maybe this law will help them develop some social skills!

Overall, the impact of regulation is higher costs – companies will have to shell out more cash to comply with new rules and/or make up for lost business.

The impact on the stock market could be significant. In the short-term.

That’s because right now, across the board, market valuations are stretched to nosebleed levels.

The market has persistently been at the highest level ever on a median price-to-sales basis. Technology companies typically trade at elevated levels relative to sales. For them, it’s all about the future, but that puts pressure on today’s stock price. As growth slows, and regulation becomes a factor, there won’t be many places to hide in the stock market.

But out of the ashes of one cycle emerges the next cycle’s winners.

There’s only one Microsoft, but there were dozens of companies creating spreadsheet and word-processing applications. Google dominates search results, but I can remember when Yahoo! was at the top of the heap. Remember Ask Jeeves?

New winners will emerge and they will create big opportunity to profit.

Regardless of the possibility of increased regulation, technology companies will continue to innovate. Old problems will be solved while new problems will arise. Disruptive technologies aren’t going away, and “disruption” is the theme of this year’s Irrational Economic Summit in Austin, TX.

I plan to present a technology company not on the government’s radar, yet its little-known technology, which has been around for years, threatens to disrupt a trillion-dollar industry. It’ll be worth your time, so I hope to see you at IES this year down in Austin!

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John Del Vecchio

John Del Vecchio is the author of the bestselling book, Rule of 72: Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio.

As the in-house stock market guru and forensic accountant for Dent Research, John stood on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, and built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around.

John is also the executive editor of our Hidden Profits newsletter and our trading service Small Cap All-Stars.

He graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.MORE FROM AUTHOR