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Editorial from our friends at Southbank Research. We’re thrilled to be working with independent research firm, Southbank Investment Research. They help investors’ money work harder for them by publishing alternative investment ideas and advice. Their experienced editors offer different strategies via a collection of newsletters for different risk appetites.
Author: Sam Volkering
Please note: Seedrs does not provide investment advice.
It would be easy to look at the headlines in mainstream financial press and conclude, the tide has gone out and it’s not coming back in for a while.
You only need to take a cursory glance at sites like the FT or the Economist to get a sense of the temperature they want you to feel.
On Monday (6 Aug 23) from the FT, “European companies suffer €100 billion hit from Russia operations.”
This one from Bloomberg, “HSBC executive slams ‘weak’ UK for siding with US against China.”
And one on Yahoo! Finance on Wednesday morning (8 Aug 23), “UK heading for five years of economic gloom.”
It’s enough to make any investor seriously question whether it’s worth investing in the markets or not. And if we look at the way the UK FTSE 100 and FTSE 250 indexes have done over the last five years, it would also be fair to think investing has been a complete waste of time.
Both leading indexes are lower than five years prior. However, this does not paint the true story of the market and of investor appetite for new investment opportunities.
What we’re seeing now is an increasing positive sentiment towards growth opportunities in the market. This is a turning of the tide so to speak from the idea that “value is back” in the market.
When the stock market hit the brakes in 2022 thanks to central banks (finally) deciding to get off their backsides and do something about inflation, the market decided very quickly that growth investments were off the table.
And to a point, rightly so. Eye watering valuations for companies that made no money and consistently went to the capital fountain was never sustainable – unless money stayed cheap and free forever, which it never was.
We saw companies get crushed and many fail. Capital dried up, stock prices dwindled and organisations from mega-cap tech giants to microcap mining minnows had to tighten the belts, restructure, and run a business properly again.
Value was everything. Cash flow generative legacy companies that paid dividends were everything to the market again. And we saw that in the stock prices of companies like BHP, Rio Tinto, Vale, Shell, Exxon Mobil and Anglo American.
But 2023 has been a different kettle of fish. And the appetite for value remains, but there’s certainly a rotation now from value back towards growth opportunities. The evidence of this is coming via the leading tech mega-caps stocks in the US which have all blown the doors off the market in 2023.
NVIDIA, Google, Microsoft, AMD to name a few, all completely defying the mainstream rhetoric you read about the dire state of economies.
Driven by investor excitement behind major tech trends like artificial intelligence, quantum computing, and advancements in semiconductors and superconductors once again we’re seeing that appetite for higher-risk growth investments come back to the market.
This renewed love for the high-risk, future opportunities may be premature. And the valuations again still look eye watering in some cases. But you also can’t ignore the fact that regardless of what the economy does, invention, innovation, and discovery is an inevitable part of human progress.
Of course, you still need to weigh up factors like available capital, cash burn, product timelines, margins, cash flow, commercial deals, and management ability to execute (amongst other things). But for me, “growth” is never out of picture, it’s just about keeping your eyes open to the real opportunities in the market.
That comes in direct stocks but also increasingly now in available off-market opportunities that we’re seeing pop up on Seedrs. The perfect example of that is the hugely successful Green Lithium campaign. It shows that investors aren’t shying away from high-risk, capital-intensive growth opportunities.
I don’t think the tide ever really went out, and if anything, it’s the perfect time to be swimming amongst the breaks again. Now is a perfect time to be hunting down and digging out the future stars of tomorrow, both in the public markets, and those looking to tap into the equity crowdfunding market too.
About the author: Sam Volkering
Sam has built a career advising private clients and businesses on how to manage their money and build their wealth. He has become a prominent voice in crpyto investing and heads up small cap investing for Southbank Investment Research.