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I’ve said it once. I’ll say it again.

No one knows yet just how significant COVID-19 has been on the shift from a Physical to a Digital First economy. We have some rough estimates.

In Q2, ecommerce sales increased by 45%, year-over-year. 

And ecommerce now accounts for about 20% of all consumer spending. 

That represents an exponential amount of growth in just a decade. 

I expect that it’s going to continue to grow at a breakneck pace in the years ahead. 

But before I lay out the real opportunity ahead…

A warning: Your refrigerator might be trying to kill you. 

Let me explain what that means.

 

The Monsters in the Walls

 

I love fall. The leaves start to change. 

We no longer break out into a sweat while walking to the car. 

And it’s nice to have football back in our lives again. 

But this year is so much different. In what is one of the most incredible shifts I’ve ever witnessed, businesses are moving to a Digital First world when it comes to succeeding. 

COVID forced this transition. And it’s much bigger than people can quantify right now. 

In fact, IBM says that COVID has accelerated the shift to ecommerce by FIVE YEARS.

Thanks to COVID-19, the pace of technology adoption and acceptance accelerated to light speed and then straight to ludicrous speed. This is incredible for the future of convenience. 

But with this digital economy comes a new threat. 

A world where you where your refrigerator can attack you.

 

 

A world where there is now a better than zero chance that your dishwasher will collaborate with your toaster, steal all your money, and send it to destinations unknown and undiscoverable.

The digital future is going to be as wonderful as advertised. 

The Smart Home and the Smarter Office are going to be incredible.

Already we can change the setting of our thermostat, adjust the lighting, turn on the coffee remotely for our cell phones. Smart homes will be the standard.

You can’t even get a hardlined security system in your home anymore. Everything is digital, Smart, wireless, and completely reliant on The Cloud.

The incredible adoption of smart technology and digital commerce by Americans creates a new set of risks. And from those risks come an opportunity that doesn’t come around very often. 

 

More Vulnerable Than Ever

 

Most people do not realize that every device attached to the digital world is one more point of vulnerability.

A hacker can come in through your digital light switch that allows us to adjust the lighting from halfway around the world. 

That’s very convenient, but it also has opened you up to the possibility of disaster. 

Once the hacker is in the house, he can jump to almost anywhere, including your laptop, your phone, to pretty much any connected device in your home.

In what can only be considered laughably ironic, connected security devices are among the most hacked Internet of things devices, according to one study I read this week.

 

 

What keeps safe in the real world increases our vulnerability in the Digital world. 

With this level of vulnerability, the hacker can now access your financial data, your identity, and pretty much everything else they want to know.

Even worse, the hacker can now hide in one of your stems like your laptop or digitally connected watch or fitness device and hitch a ride to work with you in the morning.

I bet you didn’t think about this. Few people do.

Depending upon where you work and who you work for, that could be a disaster.

As your vulnerability could quickly become your company’s vulnerability.

 

There’s Only One Protection

 

George Orwell once warned that we sleep safely in our beds only because rough men stand ready in the night to visit violence on those who would harm us.

That’s heavy stuff. 

In the digital future, we will sleep safely in our beds only because caffeine and pizza fueled software developers have stayed at the keyboard, pounding out the millions of lines of code needed to develop the cybersecurity software we’ll need to keep the hackers at bay.

I can’t stress this enough. 

Cybersecurity is the most important business of the future. (And I know the best company for this booming trend). 

And it’s not just the big businesses that need cybersecurity.

The smart home is going to have dozens of potential digital entry points. You will need a cybersecurity plan, and it will require frequent updating.

This isn’t like traditional warfare.

You cannot defeat this enemy

Every time he fails, he will develop a new plan of attack.

 

 

This new criminal is a lot smarter than the idiots who tried to hold up the local liquor store with a pellet gun.

Unlike the burglar who gets caught, the digital criminal will not be taken out of circulation by the local cops.

Chances are, he is not even on the same continent as you, but if your cybersecurity plan is not up to date, the hacker can get into your home right there in Anytown, U.S.A.

As frightening as all this sounds, there are some brilliantly bright silver linings. Those caffeine-fueled coders will be working for cybersecurity companies. 

Many of those companies will be publicly traded. 

Many more will become publicly traded over the next few years.

We can identify those cybersecurity companies that are positioned to make billions of dollars helping us protect our homes and our businesses.

 

Buy Cybersecurity Stocks

 

By all means, we should own all those companies that are creating the digital world. These companies are going to change our lives for the better.

We also need to invest in the companies that will help keep the digital world a safer place for us all.

If you are investing in technology and do not own cybersecurity stocks, you are leaving a lot of money on the table as a long-term investor.

But I’m making it easy for everyone. 

Tomorrow, I’m unveiling my No. 1 stock pick for October. And it just so happens to be a rising star in the cybersecurity industry. 

You’ve probably heard of them, and maybe even used them. 

But as 70% of small businesses prepare to INCREASE cybersecurity spending in 2021, this is the company poised to benefit most. Wall Street says it has 70% upside over the next 12 months.

I think that the upside is around 114%. 

I’ll be unveiling this pick tomorrow at 2 p.m. 

If you want to attend, sign up for my Portfolio Maker at a 84% discount to membership price. 

I hope to see you tomorrow,

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

Have you ever looked at the performance of stocks compared to bonds?

When I sat down with JC Paretz on Monday, he threw up this simple chart, and it blew me away.

Here’s a snapshot from our full interview.

 

 

This chart represents the Nasdaq 100 (QQQ) to long-term US Treasuries (TLT).

And I want to explain why this concept is so powerful to trading.

Because as JC explained, this ratio can help identify market swings.

Before we get into the nitty-gritty, take a moment and watch our interview. 

It lays out some profound ideas and he even gives away a few stock picks.

 

Click here to watch our interview

Now, let’s dive into how to read these ratios and some examples you can apply to your trading.

 

The Ratio Basics

 

As JC points out, the ratio of one asset class to another helps you understand relative outperformance.

For example, we can look at the Nasdaq 100 (QQQ) on the same chart as small caps (IWM) and see how much better technology has done.

 

QQQ to IWM Ratio Weekly Chart

 

Starting a little before 2018, this shows the QQQ outperformed the IWM nearly 2:1.

And that’s pretty incredible considering both are supposed to be risky assets.

What about those safety assets gold (GLD) and bonds (TLT)?

 

GLD to TLT Ratio Weekly Chart

 

This one’s really interesting because of its mean-reverting properties. 

You can see how when one gets too far out of whack for more than a couple of months, it swings back in the other direction.

It also supports the general idea that gold is an inflation hedge when inflation is measured by US treasuries.

 

What This Means For Equities

 

Let’s go back to the chart JC showed us in the video.

QQQ to TLT Ratio Weekly Chart

 

Over time, equities outperform bonds. If I extended this chart further, you would see the gradual rise in the chart over time.

That makes sense because of the risk associated with equities.

Now, here’s a question posed by JC in the interview.

Who in their right mind would buy treasuries that yield less than 1%?

I want to take you back to the 1960s to give you some perspective on the current treasury prices.

 

10-Year Treasury Yield

 

We aren’t just at all-time lows, we’re near zero.

And so far, the Fed hasn’t indicated it wants to break that threshold.

But even if it did, would you expect treasuries to outperform the QQQ?

That’s why we can look at the chart JC presented as a starting point for a medium-term view.

What the support level on that ratio chart says is investors and traders have allowed the gap between the two to close.

But, as long as that support level holds, they expect the QQQ to outperform treasuries.

 

Using the SPY as Validation

 

Now I want to look at the SPY vs the TLT to get a sense of where things sit for a broader basket of stocks.

 

SPY to TLT Ratio Weekly Chart

 

This one isn’t nearly as bullish but isn’t bad either.

What I see here is a market that managed to stay above the drawn support line from 2017-2019.

With the recent selloff, it’s come back into that same area, just like the QQQ.

So I view this the same way.

As long as the SPY doesn’t start collapsing below this support area relative to bonds, then I believe markets can still run higher.

That’s not to say we can’t get selloffs here and there. 

But we need sustained movement from stocks heading lower and bonds higher to really collapse this ratio.

And right now, I think it would be tough for bonds to rally much higher from here without the Fed explicitly opening the door for negative rates.

Interesting fact: Charts like these help explain why the Fed’s intervention in the treasury markets boosted stock prices.

 

Applying to my Trading Portfolio

 

With these charts, I can develop a portfolio bias for stocks.

For example, with stocks at the support levels on these charts, I’d start looking for a bottom reversal in stocks that coincided with a top in bonds.

Using that reversal as my stop, I could begin adding long call option plays on some of my favorite stocks.

Now, if you’re not familiar with call options, check out this quick training video I put together.

Click here to watch my training video

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

My investing partners and I, The Boardroom, have identified the next startup we’ll be investing in.

They’re a rapidly-growing adult (alcoholic) beverage brand. 

But not just any beverage company…

Earlier this year, a well-known global research firm recognized them for their growth (cases/volume, dollars, and sales velocity).

They also named them in the Top 10 Brands for their entire beverage category.

They’re on to something… and it’s called Product-Market Fit (PMF).

While this deal isn’t quite ready for investors just yet, I’ll be keeping you updated as this opportunity unfolds. 

In the meantime, download your copy of my latest investing guide, the Startup Investor’s Playbook.

It’s where I share the most vital pieces of MY Angel Investing strategy.

So how important is product-market fit?

Well, it will make or break a startup. 

Let’s look at some examples of real companies that absolutely nailed it…and some that just missed the mark.

 

What is Product-Market Fit?


Product-market fit (PMF) is the key to any startup’s success. It’s the most important thing the startup needs to get right, and the most important thing for you, the investor, to identify before investing. 

The word on the street is that Sequoia Capital founder, Don Valentine, invented the concept which was then popularized by venture capitalist Marc Andreesen. 

Andreesen says, “Product/market fit means being in a good market with a product that can satisfy that market.”

Seems kind of obvious, doesn’t it? 

As simple and straightforward as PMF is, you would be shocked at how many startups get it wrong. It is far more complex and elusive than you think. Knowing what it is and knowing how to achieve it are two very different things.

I’m going to show you exactly what you need to know about this essential concept from an investor’s point-of-view. I’ll even throw in some of the best and worst examples of product-market fit from real companies.

 

Why Investors Need to Know


Product-market fit isn’t an idea or a value,
it’s a position.

Believe it or not, PMF comes after tons of other essential milestones have been met. It’s the result of loads of planning, testing, and validating. 

This is why your job as an angel investor can be tricky. The startup you invest in will probably not have a product-market fit yet. Your job is to assess the startup to see if it’s on track to reach it. 

You will constantly find companies that have great ideas and great teams but simply cannot connect the product to the market. Either they haven’t defined an underserved market or they don’t have a strong value proposition.

Spotting these things and separating the wheat from the chaff is your job. Your success depends on it. As an investor, you need to start seeing companies in this light. 

 

Identifying Product-Market Fit


Finding if your startup can reach its product-market fit is easy. Put simply, customers should see the product and say,
“That makes my job so much easier!”, or, “The one I have can’t do that!” 

Those reactions are a sign of a product that fits an underserved market and brings value to the customer — the basics of product-market fit.

Getting a bit more in-depth, here are four questions to ask yourself when checking out a company:

  1. Is there a clearly defined market?
  2. Does this product solve a problem for that market?
  3. Has the product been tested on real customers?
  4. How do customers respond to the product?

The better the answers, the better the chances of the startup’s success. If a founder can’t answer these, they simply don’t understand product-market fit and aren’t worth investing in. 

Ideally, the answers should look like this:

  1. Yes. We have chosen a target customer and we know everything about them.
  2. Of course. We are solving problem X or satisfying desire Y for our customers.
  3. We sure did. Our product has gone through rounds of testing, feedback, and iteration. 
  4. When customers try our product, they instantly see the value in it. 

Don’t worry if the team hasn’t taken in that far yet. If they had, you would be investing on much different terms. The goal is to see if these things have been considered. Just check the position of the company and see if it’s on track to succeed.

 


Want to become a startup investor? I outline the most vital pieces of my Angel Investing strategy in my latest investing guide, the Startup Investor’s Playbook. Download your FREE copy today (retails for around $49)…


 

Companies That Got PMF Right


OK, I think you get it now. Product-market fit is everything. Angels live and die by it. 

Let’s check out some of the best examples of companies nailing the product-market fit so we can learn and grow and hopefully make big returns on our investments. 

Sound good? Good. Let’s get right into it.

 

Docusign

Product-market fit tip: Find what people are already doing and make it so much easier they have to take notice.

Before DocuSign, people were faxing or scanning and mailing signed documents. The system worked and there was a huge market for it. Then, Docusign came around and digitalized everything. Now, documents can be signed, sent, and stored easily and securely.

This was a game-changer.

Apart from getting everything else right, the company had a clear product-market fit. They already knew there were customers for their solution, the only question was whether they could get enough people to adopt it. The solution was so drastically easier than the alternative that loads of businesses happily switched over. 

Docusign nailed its product-market fit and went on to be wildly successful. It raised $536.2 million in funding and went public in 2018.

 


Download your FREE copy of my latest investing guide, the Startup Investor’s Playbook. In it, I outline the most vital pieces of my own Angel Investing strategy.


 

Slack

Product-market fit tip: Take a bunch of things customers are already doing and bundle them together (bonus points for network effects).

Slack took almost every type of communication that businesses use and combined them. Emails, watercooler conversation, messaging, file-sharing, were all brought into one seamless application. 

Right away it shows a value proposition to businesses — an all-in-one suite for better communication and collaboration for teams. As well as creating a ton of value for users through the network effect. The more users on the platform, the more valuable it is for each user.

There were other apps doing something similar, but Slack with its custom emojis, threading, and intuitive interface, created something much better, more fun, and more social.

The result was a work application that users enjoyed using. Overnight, individual-based communication (email) gave way to team-based communication (Slack). 

Slack is fabulously successful. It raised $1.4 billion in funding and landed a hefty IPO exit.

 

Twitter

Product-market fit tip: When you find out you have no market — pivot.

To have a product-market fit, you don’t just need to think you have a market, you need to iterate and test until you know you do. 

More often than not, startups make products that there just aren’t any customers for, despite their best guesses. Or, in the case of Twitter, your market gets stolen right from under your nose.

Twitter began as a startup called Odeo. Odeo was going to be a website for creating and sharing RSS-syndicated audio and video — later to be known as “podcasts.” 

Then, catastrophically, the already-huge iTunes launched its podcasting service, essentially making Odeo irrelevant. The market was gone, eaten up by a giant competitor.

Instead of laying down to die, the Odeo team pivoted hard into another idea, a social network, one where users share brief posts on what they are doing and thinking. Yup, that’s Twitter.

In this new market, Twitter was able to compete with other social networks through its unique focus and purpose. It found a new customer base, tested it with them, and found its product-market fit. 

The rest is history. Twitter went on to become a unicorn — $1.5 billion in funding, an IPO, the whole nine yards.

 

Companies That Got PMF Wrong


One of the best ways to learn product-market fit is to see companies that missed the mark. Here are two I think you can learn a lot from. 

 

Segway

Product-market fit tip: Innovation isn’t enough — a product should solve a problem.

I’m sure you’re all familiar with that famous, futuristic (but not in a cool way) vehicle known as the Segway. There were huge expectations behind this little self-balancing electric vehicle. The Segway was supposed to carry us into the future on two wheels.

Despite having a great product and lots of funding, the Segway was a flop. 

The first problem — the team never identified the target market. It was just assumed that people would want to use the thing on novelty alone, or perhaps they thought their product was so revolutionary it would catch just like wildfire and take over.

Next, they never bothered to test it with real consumers because they wanted to keep it a secret. Their fear of potential competitors had them going to the market blind to what people actually thought of the product. 

Most of all, the Segway didn’t solve any problems. It was developed and marketed as a vehicle for everyone, pedestrians, commuters, workers. They thought it could replace cars, bikes, and our own two feet. Turns out, it doesn’t add enough value to do that. People get by with the alternatives just fine.

As a side note, the Segway actually has a product-market fit with warehouse companies, police forces, and a few other niches. If the Segway team had checked their expectations, tested, and iterated, they could have focused on these markets and done quite well.

 

Yik Yak

Product-market fit tip: If you pivot away from a product-market fit, you may never get one again.

This is an interesting case. Yik Yak was an anonymous social media application. Users could connect and talk in forum-style threads based on their proximity to each other. 

The app became hugely popular with high schoolers and college students. Yik Yak rapidly grew, reaching a valuation of $400 million at its peak. 

The trouble started when some media outlets criticized Yik Yak for facilitating cyber-bullying. 

In an attempt to change its public image, the founders made several big changes to the service. They removed users anonymity and more or less turned the platform into a standard social network, stepping right into competition with Facebook and the like.

Yik Yak had lost its identity. The changes alienated users, pushing away a loyal customer base. It tanked shortly thereafter. 

In 2017, Square purchased Yik Yak’s engineers for $3 million, a long fall from $400 million.

It was a tricky situation they faced. They could keep a successful product-market fit and be criticized or they could rebrand and risk losing it all. They attempted the latter and it didn’t pan out. 

PMF is a hard thing to come by. Once you get it, you should try to keep it at all costs. And as an investor, it should be top-of-mind when evaluating your next potential investment.

Ready to apply what you’ve learned today to a real angel investing strategy? Download your copy of my latest investing guide, the Startup Investor’s Playbook

Author: Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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