How Uber’s Disaster Impacts Your Portfolio

Keith Fitz-Gerald Jun 23, 2017
3 

Many investors think that what’s happening with Uber can’t or won’t impact their portfolio because it’s a private company.

Think again.

Uber’s ongoing train wreck will have a material impact on your money in ways that most investors won’t expect.

Especially when it comes to my favorite subject.

Profits.

What’s happening with Uber is pretty straightforward, and proof positive that we’ve been on the right track all along.

The company is a classic disruptor that’s gotten where it is today by stomping all over anybody who got in its way – from regulators to competitors to customers.

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Plenty of evidence is now emerging that recently resigned CEO Travis Kalanick was not somebody to be feted nor fawned over. Instead, he appears to be a highly flawed individual with little regard for anybody but himself.

Win-at-all costs is not the sign of a long-term leader worthy of your investment dollars.

And, what is?

That’s exactly what we’re going to talk about today.

Contrary to what a lot of people believe about big tech or disruptive companies, you cannot have management acting like a bunch of spoiled brats on a kindergarten playground.

There are billions of your dollars at stake.

Here’s what you need to know about Uber’s flameout and the impact it will have on your portfolio.

Perception is everything…

Companies like Uber don’t make their mark because they’re disruptors. In reality, they make their mark because they are game changers run by managers who understand the responsibilities that come with their role.

Bluntly, Uber didn’t invent the ride-sharing concept and Kalanick isn’t anywhere even remotely on the same playing field as Elon Musk, Bill Gates, Jeff Bezos or Steve Jobs.

What he did was take an idea and use technology to spread it around the world at a time when the world was shifting to the mobile app that made it possible. At the same time he shifted away from the notion of employees and towards the so-called “gig” economy and made no bones about using other people’s cars, phones, and labor to get it done.

In that sense, what Kalanick’s built is no different than a huge lawn service business. A customer calls and the company sends somebody to get the job done… or in this case to get you where you need to go. It’s not a “must have” nor is it tied into our Unstoppable Trends simply by virtue of the fact that it’s replaceable at the click of a button.

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This was a distinction lost in translation, and a subtlety that’s never come to the forefront until now.

What makes Uber so important against this backdrop is that the company’s troubles are being played out in public despite the fact that it is private and theoretically free from the need to air its dirty laundry.

The very nature of the structure that got it so far so far is at once a strength and a weakness that makes every hit to its reputation that much harder to deal with.

The consequences are pretty significant:

  • Uber got where it is today by bulldozing anybody who stood in its way and by ridiculing politicians who sought to regulate it while protecting their own vested interests. As you might imagine they don’t take kindly to that sort of thing so Uber’s almost singlehandedly ensured that those very same folks will take a tougher stance on every disruptor going forward, even in completely unrelated industries. In other words, Uber’s brash actions have all but ensured creativity is now the enemy even if it does create jobs, boost taxes, and replace badly flawed industries.
  • Bro-backlash is a term you may not have heard but one ripe for an overhaul. It’s a lifestyle embraced by Uber (and many start-ups) that’s allowed rude, lascivious and simply crass behavior to flourish under the guise of innovation. It’s a culture dominated by self-indulgent young men who don’t understand that manners, discipline, and actual management acumen are what’s required to be worth a few million let alone a few billion. Sexual harassment is but the tip of the iceberg considering that public opinion will be far more damaging to the brand.
  • Legal woes aren’t just a matter of doing something against the law. There appears to be a strong body of evidence emerging that Kalanick deliberately created programs and directed his engineers to code the app in such a way that Uber hid the availability of its cars, rigged rates, and more. My favorite “you couldn’t possibly be so stupid move” though is that Uber may have actually programmed things to deny rides to Federal regulators charged with investigating the company.

IPO Outlook

I’d hate to be an early stage investor in Uber at the moment. Between the lawsuits, the investigations, and the revolving door of top management, the investment is probably a bust.

Silicon Valley, of course, doesn’t want you to believe that, which is why they’re out in force trying to justify why the idea of Uber is still a good one, why a new CEO will change things, and why the company will still be a great investment when the time comes.

Not on your life.

Like every politician who wants to get re-elected, Silicon Valley wants you to believe that their model is sound. At the same time, they want you to think that groups of self-absorbed individuals with nothing in their lives but their “disruptive” technology are so far ahead of us mere mortals that we’ll all gladly fork over billions to help them become instant billionaires when the company goes public.

I can’t imagine an investment bank that will want to take them public. But, undoubtedly, there will be one eventually if the fees are big enough.

Outlook for Competitors

Taking a competitor like Lyft public, though, is another matter entirely. There, money is flowing thanks to a deal with KKR as part of a funding round worth more than $600 million, and at a time when the company has teamed up with Waymo. And, let’s not forget that Didi Chuxing has received more than $7 billion from Apple Inc. (NasdaqGS:AAPL) Tencent Holdings Ltd. (OTC:TCEHY), and Alibaba Group Holding Ltd. (NYSE:BABA). Lesser companies include Grab, Ola, and Curb.

The lesson here is an important one.

The true value of a meltdown is what happens next. Trailblazers come in fast, hit hard, and make a huge impact – often becoming media darlings. But, they rarely survive. Eastern Airlines, People Express, Kodak, Palm, Blockbuster, Myspace… they’re all gone.

In their place come a raft of companies that can move faster to achieve better results and bigger profits because they adapt. What’s more, they don’t have to spend all the money that the “first in class” do, did.

It’s too early to tell which of Uber’s competitors will rise to the top but I’m watching very carefully and looking for an executive team that understands the responsibilities associated with being truly world class.

Collateral Damage

Most investors believe that Uber will not have a material impact on their portfolio because it’s private.

But, that’s not true.

I think Uber’s flameout will cause regulators to become more aggressive in every industry just to prove they can be. And, punitive.

Insurance stocks, medical stocks and, of course, financial stocks will become a lot more volatile. That’s the case, for example, with big banks already but I think it’s going to spread to brokerage companies, too.

Both the ratings agencies and regulators assigned to protect the investing public were completely asleep at the switch when the Global Financial Crisis hit and took millions of investors on a white knuckle ride they didn’t sign up for. So they’re trying hard to present a “tougher” image by being more proactive.

At the same time, I believe the Uber situation has the potential to rewrite the incestuous investment banking that drives Silicon Valley. It’s making the public wake up to the fact that aggressive, spoiled brats aren’t necessarily good financial stewards. That has the potential to “flop” IPOs for the next year or two – making them even more risky for the investing public than they already are.

And, finally, Uber’s foibles will make other recently IPO’d stocks suspect because investors are going to look at them and at their CEOs specifically in a harsh new light. Snap, Fitbit, and GoPro all come to mind.

So now what?

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Uber should be a wakeup call for any investor who fancies owning a disruptive company regardless of industry. The risks of being taken to the proverbial cleaners are higher than ever.

Unless you invest well ahead of the IPO process.

That’s the one way around this mess where profit potential remains intact simply because that’s where the vested interests will make their last stand. So you want to align with them rather than square off against them when the company goes public.

Most investors don’t even think this is possible but I’m here to tell you it is using a choice like the Fidelity Contrafund (FCNTX) which holds pre-IPO stakes in a number of startups, including at least $100 million in Airbnb, a $22.5 million position in Dropbox, and $500 million in Pinterest – none of which have Kalanick-style management.

Of course, it also had a $28 million position in Snap Inc. (NYSE:SNAP), but that’s a story for another time.

The fund also has holdings in Facebook Inc. (NasdaqGS:FB) and Amazon.com Inc. (NasdaqGS:AMZN), just to name a few of the mature tech companies out there.

Subscribers to my premium service, the Money Map Report should be familiar with this opportunity, as it’s one of ten 26(f) “programs” we uncovered just a few months ago. Already, FCNTX has returned double-digit gains – and, if you’re following along, you know that all ten of these opportunities are in the green. You can get the full scoop on the 26(f) “programs and start generating extra income today… just [click here].

And, finally, the fund has large holdings in dividend “rock stars” like Apple Inc. (NasdaqGS:AAPL), Wells Fargo & Co. (NYSE:WFC), Microsoft Corp. (NasdaqGS:MSFT), and United Health Group Inc. (NYSE:UNH), just to name a few. Not only does this give you unparalleled stability, but plenty of cold hard cash, too.

As always, though, keep risk management in mind by using Total Wealth Tactics like position sizing, trailing stops and even lowball orders to keep from getting caught off guard by a Kalanick-style meltdown.

Until next time,

Keith

3 Responses to How Uber’s Disaster Impacts Your Portfolio

  1. Barry says:

    I like that fund thanks for the intro

    BTW have you noticed ( sure you have ) that esko is making a comeback, got down to basically buck & now 2.225 or so

    • Keith says:

      Hello Barry and you’re welcome.

      Best regards and thanks for being part of the Total Wealth Family, Keith 🙂

  2. Bill Gasperson says:

    As a Money Map Report member, how do I get more information on these stocks?

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