I had the chance a couple of weeks back to talk to someone in the equity research community that I've begun to trade thoughts with on a somewhat frequent basis. The angle that good sell-side guys take in looking at the market is not all that different (just higher level) than industry analysts who are supposed to be digging into the nuances of the solutions themselves. In other words, any sell-side technology guy worth his salt will focus on customer references, channel checks, etc. as part of their research (in addition to attending vendor events, investor days, etc.) And hopefully they'll also understand at least the basic elements of how customers actually use the solutions from the companies which they are covering.
Rather than offer you a long-rant today on whether or not this is a good thing (or not) -- or how to pick analyst recommendations to follow -- I'm going to rattle off a couple of tips on investing in the current markets based on some of the advice and information I provided in this conversation and others like it recently to folks in the investment world, a number of whom like to pick my brain around the market in general. Now be warned: I'm not a numbers guy anymore -- nor do I hold any direct investments in technology or services companies because of my work on Spend Matters -- but I do think some of this information from the trenches might be valuable for everyone who reads this blog and is looking at the current state of their investment or retirement portfolio.
One financial bet I'd like to suggest is to look long and hard at companies tied to Spend Management these days relative to other tech and services areas (as well as those organizations that have already embarked on large cost cutting initiatives themselves through pursuing broad-scale Spend Management programs). Many providers in this space that I talk to on a regular basis have much brighter prospects than others during the downturn because of where companies are choosing to make investments. Now, there's certainly risk here (e.g., services revenue for some companies is down while for others it is climbing within the sector).
But in general, public company stocks (and private company investments) in the procurement and supply chain world during the downturn make good sense relative to the broader market that is not as focused on cost cutting or supply risk reduction. From all the deal flow I'm seeing at the moment, the next 18-24 months will be good for a broad range of companies in the sourcing and procurement sector. Deal sizes might be smaller, but the level of activity is looking solid from my vantage point. If I was an investor in individual stocks, much of my risk capital would be allocated to these types of providers today (it would not have been 18 months ago if you're curious). Furthermore, if you have any information on procurement organizations in the Global 2000 that are ramping up their efforts on a massive cost-cutting scale, this might potentially be a leading indicator from a positive earnings surprise standpoint a year or two from now (provided they can hold the top line together). Best to consider them as well as speculative elements of a portfolio.
Another financial bet worth making based on what's going on in the Spend Management world today is looking closely at commodity markets worldwide. When it comes to my personal portfolio, I will likely place some 12-36 month bets in a few commodity areas, gambling on the belief that inflation will soon take serious hold (in addition to returning demand during an eventual upswing). Playing the commodities markets -- especially if you're in procurement and are looking at them for your own account -- does not have to be overly complicated. By looking at some of the ETFs that are available, for example, you can see that there are numerous ways to cost-effectively invest in a plethora of commodities on a global basis. But like all investments, buy what you can understand and know. And just as you would consider working with consultants to help in specific supply chain or category sourcing strategies, consider talking to an investment professional with experience in commodities investing before getting involved. Heck, relationships like this might also be of use in your day job from a commodity risk mitigation and hedging approach as well.
At the end of the day, personal investment portfolios are not all that different than spend portfolios. Both require research, analysis, monitoring and continual strategy development and refinement. They also require the ability to execute quickly and decisively. In my view, the best news between the two is that it's possible to leverage what you know from the Spend Management world into making money in your personal and retirement one as well. Just do so having done your homework and realizing that any type of investment could lose value just as fast as it can rise.