Tech Stocks 2020 in Review

In this episode of Motley Fool Answers, Alison Southwick chats with Motley Fool personal finance expert Robert Brokamp and analyst Dylan Lewis about how the tech sector performed in 2020 and what to expect from the industry next year. Dylan also suggests some stocks to put on your watch list. Robert talks about aligning your resources and spending during retirement and things you must keep in mind when you are planning for retirement.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on December 1, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined by Robert, jingle all the way, Brokamp, Personal Finance Expert here at The Motley Fool. Bro, how are you?

Robert Brokamp: Well, I'm just festive. How are you, Alison?

Southwick: You're always festive; I think you started listening to Christmas music back in April?

Brokamp: Well, maybe once or twice; I needed something to lift my spirits during the pandemic. But then I did stop around July, so I'm not allowed to do it until right before Thanksgiving, and I mostly stuck to that.

Southwick: Good for you. Well, enough about that, it's part two of our, I don't know, I guess four-part investing series where we're taking a look back at various investing sectors to see how they did, and then a look forward and make some guesses on what they'll do, who knows, I don't know. This week it's tech with Dylan Lewis, all that and Bro on this week's episode of Motley Fool Answers.

[...]

Southwick: So, Bro, what's up?

Brokamp: Well, a few things, Alison; three to be specific. And let's start with No. 1, and that is giving thanks for stocks in November. So, we're recording this mid-day on November 3rd, and so far the market is down today, but that doesn't change the fact that it has been an excellent month for investors. The S&P 500 will end the month up around 10%, as well the Nasdaq. The Dow will end up around 12% for the month, which -- depending on where it closes today -- could make it the best month for the Dow since January of 1987; quite extraordinary. Loyal listeners may recall that on October 20th, we had Fool analyst Bill Mann on the show to discuss the underperformance of international stocks, value stocks, small caps. I'm not saying that we called the bottom or anything, but this month, the value stocks have outperformed growth, international stocks are up around 13%, and the Russell 2000 index of small-caps is on pace to return 20%; its best month since the index was created in 1984. Quite something.

The reasons for the good returns. Well, the election is behind us; thank goodness! But most important has been the good news around the coronavirus vaccines. Investors seem to think that, well, we have sufficient light at the end of the tunnel, so the question, of course, will these gains hold up as COVID cases spike and various government entities around the world announce new restrictions and stop the spread? Who the helicopter knows? I don't. But I am optimistic that a year from now life will mostly be back to normal and the market, which is a leading indicator, seem to feel the same way.

No. 2, the roles of action and luck in retirement planning. So, a recent report from the National Institute on Retirement Security took a look at basically every challenge confronting anyone who wants to save for retirement, but there was one section, in particular, that I found interesting. So, the report highlighted the advice that workers should aim to save 15% of their salaries, pretty much as soon as they start working. Of course, the reality is that most people aren't saving that much, it's closer to, like, 7% or 8%, and a lot of people are waiting to their 30s or later to begin saving. But the authors of the report ran some numbers just to look at what would happen if someone did save 15% starting at age 25, continued to age 65, and the portfolio earned 7% a year.

What would happen? Well, by the time they reached age 65, this person would have accumulated an amount that is 12.6X their final pay. This is actually very good news, because many guidelines have found that you should have around 12% times your household income before you retire, a little more if you retire sooner, a little less if you retire later.

But then the report looked at how the numbers changed based just on the investment returns in the five years before retirement. So, again, it assumes that you earn 7% a year over your 40-year career, and end up with 12.6X your income. What if those five years before you retire were really good and you earn 12% a year, then you'd have 15.7X your income before you retire. That means your golden years are really going to be golden.

However, what if the last five years before you retire, you earn basically 0%, which is essentially what happened from 2004 to 2008. In that case, you only accumulate about 9X your household income. That might be enough for some people, especially if they're getting a pension, but that is cutting it really close. And then it also looked at how much someone would have if they didn't start saving until age 40. So, they start saving 15% of their income, they earn 7% a year. They're going to only have 6.3X their household income, not nearly enough. What if on top of that they only earn 0% on their portfolio in the five years before retirement? They're only going to have 4.6X their household income.

The lesson here, first of all is, of course, to start saving as soon as possible. And if you're getting a late start, you may have to save more than 15% to make up for lost time. But the second lesson is that what happens in the five years or so right before retirement is going to have a huge impact on the security of your retirement, it's important then to start dialing down the risk in those last 10 to five years of your career if you can still achieve your goal with less risk. The problem is some people may not be able to, they have to take more risk to hit their retirement goal. And if those last five years or so aren't very good, they have to have a plan B., which for most people mean, they're going to have to work a few years longer.

So, that's not great news about retirement, but No. 3 is a little better. And No. 3 is one of the biggest misconceptions about retirement planning. Just about every retirement planning tool, guideline, even professional retirement financial advisor makes a key assumption about retirement, and that is, spending will go up every year along with the rate of inflation. And that basically means your retirement costs more and more every year, except in the rare times when we have deflation, which has only happened twice since 1950.

Here's the problem with this assumption. It likely isn't reflective of real-life spending of retirees. For most, their spend is actually essentially flat over their retirement or even declines over the course of time. The consequence of assuming that your spending goes up every year is that you're going to assume that you need more money before you can retire, anywhere from 20% to 30% more saved than you might actually need. So, a recent study confirmed the arc of retiree spending. It's from the DCIIA Retirement Research Center, and co-written by David Blanchett of Morningstar, who in my opinion is one of the sharpest minds in retirement planning these days.

Basically, what they did is they look at the spending levels of 425 retired households who retired between the years of 2001 and 2013. First of all, they found out that only 18% of these households actually had enough assets to fund their income in their first year of retirement. And interestingly, the people who entered retirement during this time with the lowest amount of assets actually spent the most. But then, over the next several years, retirees either kept their spending flat or reduced their spending. In the words of the report "This suggests that households, at least in early retirement, attempt to right-size their spending to better align with available resources as they come to see the reality of expenses in retirement." So, after about a decade, about half the households had sufficient resources to pay for their annual spending. In other words, people retired probably earlier than they should have, and in the course of that first 10 years of retirement, they figured out they didn't have enough, so they cut back on their spending.

But even the household who had more than adequate resources, who theoretically could spend more throughout retirement, didn't increase their spending, because the reality is, we just don't spend as much as we get older. We spend less on food, on apparel, housing, transportation, entertainment. The only category that goes up, of course, is healthcare, but for most people that increase is offset by the decreases in other things. So, the bottom-line here is, if you use a retirement calculator, if you visit a financial planner, you probably should not assume that your increases are going to go up, which means you may not need as much saved before you can retire.

And that, Alison, is what's up.

[...]

Southwick: Hey! Dylan Lewis, thanks for joining us.

Dylan Lewis: Of course, it's always fun to do a crossover episode, guys.

Southwick: Yeah, this is a crossover episode. It's like when people from Facts of Life used to suddenly show up on, I don't know, what other shows were on ...

Brokamp: ... Diff'rent Strokes.

Southwick: Thank you.

Lewis: You guys just said a bunch of stuff that I don't know what it means, so. [laughs]

Southwick: [laughs] You're disgusting. So, yeah, Dylan, thank you for joining us for part two of our investing series. You're here to talk tech, but before we do that, it has been a while since you've been on the show, so how about you remind our dear listeners, the ones who don't listen to Industry Focus, who you are, what you do at The Fool?

Lewis: My name is Dylan Lewis and I host our Friday episode of Industry Focus, which is our show that, kind of, focuses a little bit more intently on some of the individual sectors of the stock market. We have Financials, Consumer Goods, we have our Wildcard show, Energy, and then Tech on Friday. We try to go a little bit more in-depth there. I also spend a lot of time working on our member experiences. And so, right now I'm spending a lot of time working on our programming and what a lot of our members are getting in service, and also our Motley Fool Live offering. So, I kind of have my hands in a whole bunch of different things, but for the most part, if there's programming that's happening, I'm probably at least aware of it here at The Fool.

Southwick: Wonderful. So, you, like I already said, are going to help explain the tech sector, what happened in 2020 and what perhaps could happen in 2021. Who knows? We'll find out how smart you are. So, let's start by breaking down the sector, because last week, or actually two weeks ago, we had Emily on the show to talk about Consumer Goods, and she mentioned that you two have a good-natured little battle raging over on Industry Focus for who gets to cover what on Consumer Goods versus Tech day on the show, so is this true?

Lewis: I think that's true. I think that's a fair way to characterize it. I mean, one of the interesting things with tech, in general, and with the way that we kind of characterize companies now is, the lines are getting far blurrier than they were in the past. You know, you look back maybe 10, 15 years ago, if someone operated in the retail space or the restaurant space, it was pretty obvious that they were retailers, they didn't have nearly the online presence that a lot of these businesses do now, they weren't nearly as focused on omnichannel. And what you're seeing increasingly is, there are heavy investments from businesses, that have conventionally been in one industry, into tech. And they are, kind of, straddling the space of being, both, in that industry and in tech. You also have all these hybrid companies that are coming in and saying, well, we're actually like a delivery business but we're a tech platform, value us accordingly. And so that [laughs] creates some good-spirited debates within the Industry Focus team.

Southwick: And so, do you two end up roshamboing for it or you're like, well, it's about Amazon, but it's more about holiday sales than it is cloud computing, or how do you guys battle it out?

Lewis: You know, I try to be charitable, I do. [laughs] But I think it, kind of, comes down to who we think can handle the coverage best. And I think just a perfect example of this is, like, Lemonade came out with their S-1 and they are a tech-powered insurer. And I looked at that [laughs] and I was like, no, this is a Monday show, like, I'm leaving this one [laughs] for Jason Moser and Matt Frankel. Those guys talk about insurance and financials and they understand that business way better than I do, I'm going to let them have that one.

Southwick: Yeah. All right. Well, how about you breakdown tech for us a little bit then as far as what industries are considered the tech sector, companies? Because I know there's, like, consumer-facing, there's B2B, it covers a lot.

Lewis: Yeah, there's a lot going on. And I think we'll kind of start with some of the more traditional definitions and the ways that people think about tech. So, typically a lot of the stuff that you'll see in that sphere is going to be consumer tech. So, any of the gadgets that we see. You know, the holiday season coming up, a lot of people are starting to think about that space right now. Increasingly, over the last decade or so, software has become more and more of a focus. And it's gone a little bit more from what we might experience on the personal side, you know, with Microsoft Office and those types of things, to a focus on the enterprise software space. And that's where a lot of businesses are using software to take things that were maybe done offline or done physically, and making them digital. And there are a lot of benefits to that, you're kind of streamlining a lot of those things.

So, you have, kind of, consumer tech, you have software, infrastructure, and kind of all of the backend stuff is also a really big part of the space. And that's where you get into all the stuff that powers cloud computing, these huge server farms, the ability to stand up all these websites that we use all the time. So, those are, kind of, three big spaces where you tend to see a lot of Fool ideas come in.

Southwick: So, what would you say are some of the guiding investing principles or quirks of investing in this sector; like, is there anything unique to consider?

Lewis: I think you kind of have to look at what is and what is not tech. And I think it's kind of hard, we talked before how the lines are getting blurry. And tech companies tend to get very favorable and rich valuations. And the reason for that is, they have fundamentally different business models than what we've seen with a lot of companies in the past. If you're a retailer, maybe you're selling shirts or something like that. Every time a customer wants a shirt, you have to provide them with a physical shirt, and so that means you have to pay people to make the shirt, you have inputs that go into creating the shirt, maybe shipping that goes into actually getting it to the store, all these different costs that come into play.

With a lot of the tech companies in the truest form, you know, we're talking about software companies and platform companies, the likes of Salesforce or maybe a Facebook or Apple's App Store, it doesn't really cost them anything to introduce new users to a platform. The way I kind of like to think about it is, if you're throwing a party and your friend says, hey, can I bring my friend? You know, just one extra person. You're like, yeah, of course, bring them. The difference is that tech companies are able to do that with thousands or millions of people and be able to immediately scale what they're doing without a lot of incremental costs. And so, when you look at tech, you have a lot of businesses that have very favorable margins. And so, for every dollar that comes in via sales, they're bringing a lot of money in that they can decide what they want to do with it after they've covered some of their core operating costs.

What that means is that they get very rich valuations. And a lot of companies want to get that valuation, they want to be seen that way, they're trying to present themselves as tech. So, one of the things you kind of have to do with the space, and especially in these kind of straddle industries, is understand, you know, are the inputs and cost for this business more aligned with a tech company and a software company, where additional users don't really wind up costing that much, or are they more like the conventional incumbents in terms of their cost structure? And I think that's one of the core ways that people really need to differentiate the contenders from the pretenders.

Southwick: What were some of the big headlines of 2020? I mean, I assume we're going to talk about coronavirus, but generally speaking. So, coronavirus related trends or just other general trends in tech?

Lewis: Yeah, I think it's impossible not to talk about coronavirus with tech, and the reason for that is, this industry has been such a huge beneficiary of what's been going on in the world. And a big reason for that is, it has pushed a lot of trends, that the industry was benefiting from, forward. And I've seen this quote floating around, I don't know if you guys have seen it, there are different forms of it that have circulated over the last nine months or so, but it's basically -- the world has changed a decade in just a few months. And what that means is, all of these things that we were, kind of, doing anyways and working our way toward adopting more and more have been pulled forward in a really dramatic way. And I think some of the easiest ways to think about that are, look at megatrends, like, e-commerce, flexible work arrangements, the shift to the cloud, increasing connectivity and our reliance on that connectivity, ad spend going digital, these were all things that were happening, but they weren't nearly as popular or as leaned upon as they have been in the last nine months of 2020. And what I think it's really done is, created mass adoption for people that weren't necessarily using those things and probably permanently shifted some consumer habits.

Southwick: Okay. So, can you dig into that a little bit more? So, work-from-home. So, companies that immediately come to mind are like Zoom. Duh! Slack, has Slack done well? No, Slack hasn't, has it?

Lewis: Well, Slack is its own animal, because Slack is possibly being bought by Salesforce, [laughs] and so ...

Southwick: Oh, right, they did have a big pop, didn't they? Yeah.

Lewis: [laughs] Yeah. But yeah, I know, I think that's a good point. Like, you look at, kind of, a future of work basket of stocks, it would be easy to look and say, well, prior to the takeover news, Slack, Zoom, Microsoft with their Office suite, and then Fiverr and Upwork, two businesses that specialize in freelance and really the ability for people to work wherever and have relationships with people that are trying to get work done, those have generally been all huge beneficiaries of people being at stay-at-home, it's really revolutionized the way that we tend to look at work. And so, I think that what's happening is a lot of the shifting is, kind of, being [laughs] felt in the market right now.

Just to put some quick numbers to it. If you're looking at something like e-commerce, in 2019, if you look at estimates, it kind of depends on who you're getting your numbers from, but e-commerce was about 10% to 15% of retail in 2019. That number is going to be a lot higher in 2020? And this has been something that has been steadily growing over the last decade or so.

Some of that stuff, you know, will revert back to brick-and-mortar spend, it's absolutely going to. But a lot of people that probably weren't buying things online, maybe like groceries or something like that, are all of a sudden going to realize the convenience of doing that. And even in a world where we aren't at stay-at-home because of the pandemic in some time in the future, they're probably going to be able to do more of that and be a little bit more interested in doing that than they might have been in 2019.

Southwick: Yeah, one thing that Emily talked about on the Consumer Good show was the idea that some retailers had blockbuster years, and that means that maybe next year by comparison they're not going to look so great. And that maybe, your point about we've advanced 10 years. Well, maybe we're seeing some stocks that have benefited [laughs] 10 years all in one year. So, do you feel the same way about tech, that next year is going to be a bit more of an exhale compared to this year or do you think it's just all up from here. Obviously, we're not stock market prognosticators, but you know, which way is it going to go?

Lewis: [laughs] I appreciate the disclaimer, and then immediately walking it back. [laughs] I think the best way to put it is, growth has been pulled forward. And you know, like, expectations kind of aligned with growth. And what we've seen is mass adoption of a lot of things that were already kind of moving along, and valuations swelled because of that. Valuations were already pretty high in tech because of how much money can flow down to the bottom-line when these businesses decide to be profitable, just given how they're set up. But I think there's probably going to be a period where a lot of these businesses that have benefited tremendously need to live up to the valuations that the market has given them. And that's not to say that things are going to come flying down anytime soon, but when we talk about expectations for investors, usually when you're buying something at a high valuation, that means that the growth expectations for that business are high. If you don't hit those expectations or there are any hiccups along the way, you can see some price dips. And so, I think it's just important to remember that we've seen a lot happen [laughs] in a very short period of time, and a lot of money has swelled into businesses that were already richly valued. They could see some disruptions, they could see some bumpy price movements along the way, but we're still really in the early innings of many of these trends that these companies are benefiting from.

Southwick: Yeah, I've been working at The Motley Fool for almost a decade now. And when I first started working at The Motley Fool, people were like tech stocks are overvalued, they can't keep going on like this any longer. Dodododo! 10 years later, here we are in the middle of a pandemic, guess what, yes, even higher.

Lewis: [laughs] Yeah, I mean, you could have said that at any point in the last 10 years and it probably would have been true, and it still is. The difference is, these businesses are just so different in how they operate. And you know, just to highlight that, Alison, I mean, if you look at the five largest companies in the S&P 500, they are all tech companies: Apple, Microsoft, Amazon, Alphabet, and Facebook. That was not the composition of the top five largest companies in the S&P 500 in 2010. They have soared because they're able to reach a mass of users, and they have such wildly profitable business models in a way that a lot of companies don't. And so, [laughs] you know, they're richly valued, but in a lot of ways, they're kind of deserved to be richly valued.

Southwick: All right. Well, let's talk about maybe some trends that were already happening before coronavirus, unrelated, probably going to continue to happen. For example, you talked a bit, Software-as-a-Service model, is that worth talking about a bit more here? It's so funny, she was like, Software-as-a-Service and B2B software, oh, man! Blargh! How boring, huh! But no, it's hot, it's sexy. Like, get some of that B2B software. What happened? Somehow people discovered it, and they're like, wait a second, this is an amazing business model that just mints money.

Lewis: Exactly. And you know, talk to an end user of most of those services and they're absolutely psyched. You know, you talk to an accountant that has to do a really difficult end of quarter marrying up with all their numbers and reconciliation, they're going to be very happy to have accounting software that helps do that, and that's what we see with these products is they are very effective. There are so many different examples of it. You know, Adobe is one of the go-to because they have this product that's indispensable for creatives.

Southwick: Rick and I will remember, back when you just used to pay a massive amount of money for Adobe. And then you would use the same outdated year for as long as you could until your operating system wouldn't support it. [laughs] Am I right, Rick, am I giving you some memories?

Rick Engdahl: Yeah, until you got a hack code from somebody, and you can go in and ...

Southwick: And then you would get it. But yeah ...

Brokamp: Legally, of course, totally legal.

Southwick: Of course. Absolutely legally. But it's funny how, it was only within like, what, the last five, six years that Adobe shifted to the recurring subscription model. I might be wrong with my timing. But it is interesting that it wasn't always like that, you used to get your box, you know, and you'd stick a CD in or ... I don't know.

Engdahl: Yeah, as an Adobe user, I love the subscription model, it's just great that the updates come all the time, you just don't have to think about it, you don't need the box. It's been great for me as a user. Of course, I'm not paying for it myself, but... [laughs]

Lewis: [laughs] Yeah, they have you for life at that point, right?

Southwick: Well, and it makes sense if, like, a business is like, oh, it's just a recurring cost, right. Like, I don't think The Motley Fool is sweating our Adobe cost right now. And I imagine it's a lot like that with a lot of these recurring subscription services, where it's like, yeah, you know what, we just pay it every year, we don't like to think about it.

Lewis: Yeah, it's somewhere they write it off. [laughs] You know, like, it just fits within large department budgets. And on the scale that most businesses operate on, it's not a huge thing. I think Software-as-a-Service, kind of, came out of nowhere and yet totally makes sense. And it's really, kind of, revolutionized the way that people interact with software. And has caused a lot of companies that issue software to go through some really lumpy periods, where they go from, kind of, the old-school license model where you get the CD, and I'm sure a lot of people are familiar with this, and they then use that until they can't use it anymore; you know, their operating system doesn't allow them to. And they are now on a monthly or annual subscription and they're paying for access to software products, they get the most recent version of it, it's delivered over the cloud.

That does a couple of things. I mean, it sets up a constant stream of payments from a customer, it gets that customer the most recent version of that software, and what we see over time, and we've seen this in so many different industries, Salesforce, we've seen it with Adobe, you know, we've seen it with Zendesk and other companies that are in the enterprise space, is you build really sticky relationships, you create something that becomes core to how business is operate. And you have growth both from new people that you're bringing in, but also growth within the spend on existing customers.

And so, you kind of have these two things where if you kind of think back to basic marketing principles, it's much easier to keep someone and much more beneficial to keep someone then to go out and acquire someone new. It's very expensive to acquire new customers. What SaaS does such a good job of is serving existing customers well and creating opportunities for them to increase their spend with a provider.

Southwick: All right. Let's start looking to the future, 2021, it's just around the corner. What are some trends that you're maybe watching in tech?

Lewis: I think we've painted a pretty rosy picture of the industry so far. And I think that we deserve to, or the industry deserves to have a sober look at it too. And something that we've been talking about for the last couple years and kind of wondering when it will happen is regulation. And I mentioned before, you know, the biggest companies on the market are all in the tech space, they have kind of different business models than what we've seen in the past. Regulators have noticed that. Consumers have noticed that. And they are increasingly wary of the power that these companies have.

You know, in the past year the Justice Department filed suit against Google's parent Alphabet alleging the company has maintained an unlawful monopoly by cutting off rivals from its distribution channels. Google owns about 90% of the search engine market. There's a lot of growing antitrust momentum for these companies, and there's some good reason for that. You know, Amazon operates in a marketplace with e-commerce, but is also a participant in that marketplace. Facebook controls the four most downloaded apps of the past decade and has a history of pretty shamelessly stealing features from other social media apps. And as this continues to go on and as power continues to be concentrated, it's only natural for regulators to pay more attention to this.

And you start to get into some conversations about, you know, well, does Amazon continue to exist with its e-commerce operations and Amazon Web Services, which is really where all the money comes from, from that company? You know, is Alphabet able to keep Google as its core search property and also YouTube, which is a wildly influential and large business in and of itself. So, I think one of the things to watch is, we've seen some momentum when it comes to antitrust, that's probably going to continue in the next year.

Southwick: And are you doing anything different as a result of it, as an investor?

Lewis: Well, what's kind of interesting is, the reason that they are catching antitrust [laughs] eyes is their businesses are so strong. And so, all the things that make them good investable businesses, you know, their strength, the fact that they have these really big moats that insulate them from competition, are the same things [laughs] that have regulators, kind of, scratching their head and saying, I don't know if this is something that really we want to have. What should give people that own shares of these businesses some relief is, very often, when you are forced to spin something out, you're actually realizing value that isn't quite being captured. Very often within this kind of larger parent holding company structure, it's easy for the value of some properties to be diminished, because you're not breaking out the financials, you're not showing the true profitability of it. And what very well might happen is the individual value of some of these things might be higher broken up, and shareholders would benefit from that, then they are currently concentrated under one parent company.

Southwick: All right. Well, we're going to draw this conversation to a close, but before we do, I was hoping you could maybe give us a stock to watch.

Lewis: Yeah. I will do you one better, Alison, I will give you two stocks to watch in the same space. And those stocks are going to be familiar to some Fools, i.e., The Trade Desk and Magnite. So, I think probably a lot of people know that first name, maybe not so many people know that second name. These are two businesses that operate in different parts of the streaming video ad market. And so, Alison, have you ever watched Hulu, are you a Hulu subscriber or member?

Southwick: No. That's like the one thing we don't own.

Lewis: Darn it! [laughs] I really had a good ...

Brokamp: I've got it.

Southwick: Bro's got it. Ask Bro that question. Talk to Bro.

Lewis: [laughs] I had a great emphatic point to make. Bro, have you ever watched Hulu and seen ads?

Brokamp: Yes.

Lewis: So, that is the work of The Trade Desk and Magnite. They work on opposite sides of this. But what they are doing is basically providing a space for people who want to buy ads and people who want to sell ad space to connect and make those advertisements appear before you. And the market that they are operating in, that I'm highlighting here, is the connected TV market, which is growing very quickly. And really, I think the thesis for these companies is basically, we've seen digital ad spend increase dramatically, because it allows for better targeting, it allows for a more dynamic insertion, you can give up more relevant ads to people that are going to be seeing them. If you think that trend is going to continue and you think more and more of it's going to go to streaming video, these are two companies that are going to benefit.

Southwick: All right. And how about a stock to avoid?

Lewis: [laughs] I gave you two to watch, do I need to give you two more?

Southwick: All right. Or is there some other trap that our tech investors out there should keep an eye on?

Lewis: I think, kind of going back to what I was saying before about companies masquerading as tech, or wanting to benefit from the valuations that come with tech. I think people are a little bit more aware of it now having seen the WeWork planned IPO that then got scaled back. But a big part of that company story and the narrative that they were selling to investors, as they raised money privately and then attempted to in the public markets as well, was we are a tech company that is operating in real estate. And after looking at the books, a lot of [laughs] people said no, you are a real estate company, you know, you don't benefit from the operating leverage, you don't get to bring in incremental users with very low costs associated with them, you're stuck with the same kind of tenancy issues that a core real estate company would.

And so, I think more people are aware of it, but you really need to scrutinize businesses that seem to be positioning themselves as tech, even though they're really operating in a space that isn't tech and doesn't benefit from the scale that the industry tends to offer.

Southwick: All right, Dylan, well, that's actually all I have for you today. There is much, much more to be understood about the tech sector, and for our listeners who want more, what day should they listen to Industry Focus, other than every day, what day ...

Lewis: Well, yeah, they should listen to every day, but if they're interested in tech, they should be checking out the Friday episodes. We're regularly doing breakdowns of IPOs as they become available and we get our hands on those prospectuses, but we also talk about earnings news and talk about some megatrends as well. So, we kind of mix it up with how we focus our shows, but there's always some fun going on over there.

Southwick: Right. Arm-wrestling Emily for who gets to talk about Amazon this week.

Lewis: [laughs] That's right. If it's consumer goods related, I'll let her have it, but if it starts getting into that AWS cloud segment, Emily, that's my turf, I'm sorry.

Southwick: Yeah. All right, Dylan, thank you so much for joining us, please come back. Let's not wait so long next time, huh?

Lewis: Yeah, that sounds great, just invite me back whenever. [laughs]

Southwick: [laughs] All right.

[...]

Southwick: Well, that's the show. Oh, you know what, let's have a disclaimer.

As always, The Motley Fool may have recommendations for or against the stocks we talked about, don't buy and sell stocks based solely on what you heard on the show.

... which is edited, doggedly, by Rick Engdahl. Our email is [email protected]. For Robert Brokamp, I'm Alison Southwick. Stay Foolish everybody.