If you haven’t yet bought a T-shirt or something in a fundraiser for your community’s small businesses, what are you waiting for?
It’s the least we can do.
Over the past few weeks, I’ve spread the wealth as best I can.
I’m happy to do it.
The novel coronavirus has been a true gut punch. It was something most entrepreneurs just couldn’t see coming, no less prepare for.
I’m not hearing a lot of complaints, mind you. Complainers, after all, don’t often become successful entrepreneurs.
Still, the odds are stacked against them.
Real small-business owners are finding it almost impossible to cut through the red tape in order to receive coronavirus relief packages.
At the same time, dozens of big public companies with access to capital markets were able to rack up $10 million loans from a federal program that was billed as emergency funding for small businesses. In all, 220 public companies applied for at least $870 million in loans from the Paycheck Protection Program.
Sure, some of those companies, including Potbelly (NASDAQ:PBPB) and Shake Shack (NYSE:SHAK), have been shamed into returning those loans … but my point stands.
To be fair, though, a different set of odds is stacked against those restaurant companies — and against almost every company out there.
I’m talking about every business from multinational food distributors to your buddy’s cigar shop.
Software Vs. Everybody Else
Below is a three-year chart of software stocks versus the market.
To be precise, the chart shows the iShares North American Tech-Software ETF (NYSEARCA:IGV) — a fund that holds many technology stocks — versus the S&P 500 Equal Weight Index.
The S&P Equal Weight Index is pretty much breakeven.
But even after that coronavirus gut punch, IGV is up an incredible 84.6%.
We all know technology stocks are doing well.
We all know technology stocks are making billionaires richer … even during the coronavirus crisis.
Since the beginning of March, more than 22 million Americans have lost their jobs.
Meanwhile, American billionaires saw their total wealth increase about 10%. They now own $282 billion more than they did two months ago — a combined net worth of $3.23 trillion.
But only one in 1,000 investors knows why this is true.
That’s too bad.
Not knowing why technology — and, in particular, software — is outperforming the rest of the market could mean having a far poorer retirement. It could mean many more years of working, instead of ever retiring at all.
While very few understand it, this gap between technology stocks and the rest of the market — this “Technochasm” — isn’t a new phenomenon.
And the rate at which the Technochasm is widening isn’t slowing down. In fact, it’s accelerating.
The reason for this is simple.
And it will be very lucrative for the investors who take the time to turn it to their advantage.
Why Technology Stocks Win
Software companies beat every other company because software basically costs nothing to produce once it’s developed.
And it can be sold for a lot.
Even better, it can be rented out — in a process known as software as a service (SaaS) — for even more over the long run.
In other words, software companies can pile up the cash while growing their sales. Microsoft (NASDAQ:MSFT), for example, has $47.1 billion net cash on hand.
To me, that makes software the oil of the 21st century. It’s the greatest force for wealth creation on Earth.
Given all the time, money and frustration that software saves us, it’s no wonder it has kicked off one of the largest, fastest accumulations of wealth in human history.
Technology stocks have won because we all place an enormous value on tech’s ability to save us time and headaches … and because it has made us much more productive.
The fastest legal way to get rich in America is to own a piece of a valuable software program or algorithm.
The smart money knows that if you want to build wealth quickly, you invest in software companies.
No other kind of investing comes close.
I told you about one software company in Saturday’s Smart Money, though I didn’t describe it as such at the time. I’m talking about video game developer Activision Blizzard (NASDAQ:ATVI).
The sixth-largest holding in IGV, Activision is up well over 10% year to date, while IGV is breakeven … and the S&P 500 is still down more than 10%.
And thanks to its status as a true “shelter in place” play — what else is there to do now besides play video games? — Activision is up nearly 30% since the market’s mid-March lows, significantly better than the S&P’s 23% move upward.
That’s the sign of a strong, resilient company … and industry.