The Best Stock Investment

Over the past twenty years, the business world has changed dramatically. Technology has been the driver of this change, causing those companies that don't change to fail by the thousands. What are the key success factors that determine the super winners, while others flounder and die?

Fortunately, many years ago, I noticed one common trait among the winners in today's world, and I am sharing that with you here.

Corporations are the components of our society that produce goods and services. And by extension, we think of the employees of those companies as the ones producing those goods and services. For example, with auto manufacturing, we often picture employees loading wheel lug nuts, or installing dashboards, building the stuff we all use.

What if I told you that the most successful companies in today's world do not have a single employee building products or providing a service?

Think about this statement again.... The most successful companies today do NOT have ANY employees building products or providing service!

It's true! And these are our most modern, successful, and highly profitable companies!

Take a company like Tesla for example. Nobody at Tesla builds cars. Not one person.

Instead, hundreds of robots build the cars. The people who work at Tesla maintain robots, and mostly write software that runs the robots. So the manufacturing of a car has been improved to a fully automated process controlled by software engineers. A process that operates 24x7, never needs a vacation, and never calls in sick.

Inside the Tesla's Texas Gigafactory

And it gets even more interesting outside the operations department, when we consider Tesla's finance department and their marketing department. Similar to the operations, there is nobody doing accounting. Instead, software engineers develop and maintain systems that do accounting. And similarly, software engineers develop and maintain systems that do the marketing. Furthermore, the software for all these areas is fully integrated.

In a nutshell, what I am saying is Tesla is NOT an automobile company. Instead, it is a software company, and the output of the software systems they build is automobiles.

There is no doubt Tesla is one of the most modern and successful companies of all time. Over the decades, many auto company startups have tried to break the Big-3 auto industry juggernaut and failed, but Tesla finally did it.

In the retail industry, Amazon has put thousands of competitors out of business by fully automating the retail business. The only piece of their business that uses real labor is the delivery of the goods. And if they could perfect drone delivery or invent Star Trek like transporters, that portion of their business would become software too.

Other companies like Uber and Lyft have fully automated logistics. And once driverless cars are perfected, there will be no drivers. Today, these companies move people from point-A to point-B, and tomorrow they will similarly move non-human cargo. All driven by software.

Other companies that fully automate and change industries include Netflix in entertainment, Zillow and Redfin in real estate, Sofi Bank in lending, and many others. All of these companies are nothing but computer software shops that focus their software automation end-to-end on a particular product or service.

This may sound relatively simple, but the implications of a company becoming a software company that does something are huge!

Traditionally, since the major world wars, companies have organized around processes. The thinking that drives this type of organization is inefficient and outdated. Just as in the 1980s, when software changed from being "process-oriented" to "object-oriented", the 1990s saw entire corporations, not just their software, become object-oriented. And this makes perfect sense if the entire modern corporation is a giant piece of software that does something!

Companies that are not object-oriented fail, or soon find themselves with significantly reduced profitability. When I hear comments from CEOs talking about improving their processes, that's a sure sign they are NOT object-oriented, and instead remain trapped in process-oriented thinking.

Another major implication of every company being at its core a software company is the technology skills of its workforce. The idea of a non-tech job has disappeared. Every job in a modern company is a tech-job. At Tesla, it may be high-tech robotics and somewhat mechanical related, or more likely it is software and systems development writing software code that automates the movement of the vehicles being built, where they even drive themselves off the line.

This next point is THE KEY to successful modern companies!.....

EVERY successful, industry-conquering company today is led by a former software engineer! If the company itself is a giant piece of software, what better mind could there be to run it?

Tesla is run by Elon Musk, a former software engineer who also co-founded PayPal. Amazon was founded by Jeff Bezos, also a former software engineer and investment banker. The founders of ETrade were software engineers who changed the investment industry by automating a discount brokerage that nearly put many of the larger established brokerages out of business. PayPal itself has changed the face of money transfers. Uber and Lyft were both founded by software engineers.

The list goes on. If the company is a giant piece of software that does something, there is no better person at the helm than a software engineer with business savvy.

In fact, when looking closely, you will find EVERY person working for these companies has software engineering skills to one degree or another. The better the company's overall software engineering skills, the more successful the company is. And that is from the CEO on down!

So why don't companies just change, get the training ordered, and transition to a new structure?

It takes years to reverse entrenched thinking, and many more years, a decade or longer, to become truly proficient in software engineering, the foundation for object-oriented thought. So not only do entrenched leaders need to unlearn old ways, they also face a long learning curve of modern skills, and an entire workforce incentivized to maintain the status quo.

Running a company limits a CEO's time to learn something new with such a long learning curve. Without the knowledge, they cannot adapt, and in modern corporations, knowledge is the corporate asset. Having a software engineering mind at the helm ensures the structure of the entire organization doesn't revert as it would with a marketing or finance guy at the top.

If an established company changes, the rate of change will be extremely slow, if at all. The change will also be met with significant resistance from within by a culture comfortable with current process-oriented thinking.

An established company's typical pattern of change is to deliver mostly lip-service, and little to no change. Those companies are full of non-technical professionals fearing for their jobs, who feverishly work to thwart change. And even if they wanted to change, they don't know how.

It wasn't a vacuum tube worker who invented the integrated circuit that changed our world. Instead, it was Jack Kilby, who in 1958, as a brand new young electrical engineer with Texas Instruments, patented the first integrated circuit comprised of three transistors. He also invented the first handheld calculator.

Xerox invented the computer mouse, and the leaders there saw no use for it. It took Steve Jobs at Apple to realize the significance of this device and make it popular. Today Xerox, once a household word, is nearly out of business, while Apple rules in the tech world.

Therefore, the best investments, those that grow the fastest, are generally NOT long-established companies. Instead, they are "established startups", newer corporations run by a former software engineer who also possesses business skills, targeting the automation and reinvention of an established industry.

This is one of the reasons I am most excited for cryptocurrencies and the crypto industry. Cryptocurrencies and their associated services are nothing but software and software security, and they have significantly reduced the cost of transactions.

All major cryptocurrency companies are led by software engineers looking to change an industry. Conversely, the established banking industry, run by stodgy old school finance guys, suffers significantly from a lack of technical expertise. Established banks have executive ranks filled with those holding mostly finance degrees, which are useless when it comes to understanding object-orientation in the structure of business or in product development. There are no "engineers" running banks.

To bring this point home, let's not lose sight of the fact that Jamie Dimon, CEO of JP Morgan Chase Bank, proclaimed for nearly a decade that cryptocurrencies would never amount to anything. Jamie Dimon lashes out on crypto: 'If I was the government, I'd close it down'. Meanwhile, crypto is about to change everything.

With the recent passage of the GENIUS Act by Congress, along with the establishment of a national Bitcoin reserve, the greatest change in the history of money will be seen over the next five years. I am not talking about incremental change. I am talking about revolutionary industry-disruptive change, especially with public policy now in full support of them.

We will likely see some major banks go out of business, which means they will consolidate with other major banks ("Too big to fail" is still a thing). Throughout this process, companies like Coinbase, Circle Internet Group, and Robinhood will thrive in the money industry they are currently reinventing.

Along with companies that might not yet be started, the change leaders will take a bigger and bigger share of the banking industry we know today. These companies are far more nimble, have far better talent, and possess software and object-oriented savvy from the CEO to the bottom positions. There are no non-technical jobs at these companies. Their employees either wrote software code or they didn't get hired. These companies are entirely software and systems.

In summary, the best stock investments have the following characteristics:

• An established startup. Not a long established company.

• A former software engineer with business skills is at the helm, ensuring proper organizational structure and use of advanced technology.

• Their mission is to reinvent and reimagine an entire industry.

• They are already profitable, or about to become profitable.

• They are already seen as one of the prevailing leaders in their space.

• The established industry players lack the talent to change, or change quickly enough.

In addition, I would only add that with the advent of Artificial Intelligence (AI), these engineers who change the world as we know it will also easily leverage AI to become even more efficient and more automated, while their competition is still wondering what AI is and perhaps how to spell it.