My No. 1 Tool for Finding Mega Tech Trends Early
Dear Wall Street Daily Reader,
There’s no shortage of leading indicators to track in the market.
For instance, a few weeks ago, I showed you that stocks love jobs. So this morning’s lower-than-expected jobless claims promise to lead stock prices higher. Bet on it!
Stock prices also love profits. If quarterly profits keep climbing higher, so do stock prices. And vice versa. It’s a fundamental law, and a key market indicator.
Those are just two of the dozens of indicators that investors track and profit from.
Of course, everyone and their mom swears that their indicator is “the best,” “irrefutable,” “the most reliable!”
Well, I’m not so bold with claims about my indicator — but I can promise you this: my favorite leading indicator is hands down the earliest one you can track.
And if being a profitable trend trader is all about being early and ahead of Wall Street — and it is — we should always pay close attention to it.
So let me show you what it is — and why it’s so powerful.
Chicken Vs. Egg: What Comes First — Product or Patent?
Before a company can book a single penny in profits, it needs a product to sell. But before a company produces something nowadays, it needs to patent it.
If it fails to take this step, competitors can copy the product — and “steal” the profits.
There’s no more glaring example of this than Groupon, Inc. (GRPN) the pioneer of the daily deals market that once received a $6 billion takeover offer from Google.
The company literally invented its market, but had virtually no patents. And guess what?
Within 18 months, literally hundreds of competitors emerged, saturated the market, confused consumers, and most critical of all, siphoned profits away from Groupon.
In the end, there was nowhere to go for Groupon’s overhyped stock but down. And as you can see in the chart below, that’s precisely how shares performed after its IPO in November 2011.
So let me be clear: patents serve as a fortress around a company’s profit potential. And they protect against new market entrants. They must precede any product.
In short? No patents, no profits. Period.
Lest you think I’m cherry-picking an example to prove my point, let me share another timelier one: Snap Inc. (SNAP).
The company emerged as a threat to the king of social media, Facebook, Inc. (FB) because of its rapid user growth. But Snap never stood a chance to dethrone Facebook.
Why? Because Snap had de minimis patent protection. This all but guaranteed that Facebook would blatantly copy Snap’s successful innovations with impunity, and then roll them out to its much bigger network — thereby undercutting Snap’s growth.
And that’s precisely what happened. Time and time again.
If you don’t believe me, check out these Google search results. They show seemingly endless examples of Facebook’s perfectly legal theft, all because Snap lacks patent protection.
Junk in the Patent Trunk
To be clear, not every patent is valuable. Take these two, for example…
A fire alarm that “traps” the person that pulls it to prevent against false alarms, which was apparently a big problem about 100 years ago…
And a sack for man’s best friend to ride along outside the car. Can’t have that pesky dog hair everywhere, after all.
Real products. Real patents. Really worthless.
I’ll concede that, out of the hundreds of thousands of patents filed each year, many are junk.
So how do we know if patents are actually valuable, and therefore reliable indicators of new tech trends?
Tune in next week and I’ll tell you. For right now, just remember that my leading indicator is the best of all! (Kidding… maybe.)
Ahead of the tape,
Editor and Founder, Trend Trader Daily