SPECIA L REPORT

The Second Wave

How to Make a Fortune During the Biggest
Market Shock of the Decade
By Jeff Brown, Editor, The Near Future Report

A Brownstone Res ea rch Pub lica tion

Special Report
The Second Wave
How to Make a Fortune During the Biggest Market Shock of the Decade
By Jeff Brown, Editor, The Near Future Report
I’m an optimist by nature.
I believe we are on the verge of an age of
abundance. And this new age will be driven by
a handful of companies and technologies in
operation today.
I’m referring to technologies like 5G wireless
networks, precision medicine, artificial
intelligence, cloud computing, quantum
computing, and the next generation of clean
energy production – nuclear fusion.
Make no mistake. Incredible fortunes will
be made in the years ahead with a few key
investments.
But we must be realistic.
Not all technology companies are great
investments. In fact, some are downright “toxic.”
And if investors are not careful, they could be
setting themselves up for potentially catastrophic
losses.
I believe we are on the verge of a “splintering” in
the stock market. What does that mean?
It means some stodgy incumbents — and some
overhyped tech stocks — will fall hard. By my
analysis, some are set to fall by as much as 92%.
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2020
But a handful of technology investments will soar
in the years ahead. I even name a few of these
stocks in my recent online presentation.
As investors, it’s critical that we’re on the right
side of this trend. The decisions we make today
will determine if we grow our wealth for years to
come or suffer potentially devastating losses.
Winners and Losers
Before we go any further. Allow me to introduce
myself.
My name is Jeff Brown. For nearly 30 years, I
worked as a technology executive for firms like
Qualcomm, NXP Semiconductors, and Juniper
Networks.
I’ve earned degrees from Purdue University
and the London Business School. I’ve also
received professional certificates from MIT,
Stanford, and most recently the University of
California, Berkeley, School of Law. And I am
also an alumnus of Yale University’s School of
Management.
I’m also an active angel investor in early stage
technology companies. I’ve invested in dozens of
private technology startups over the years. Many
you’ve likely heard of.
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I don’t tell you all this to brag.
But with so many so-called
technology experts out there,
it’s important that readers
know that I’m truly committed
to the world of bleeding-edge
technology.

And there has never been

a more critical time to
understand what is happening
with technology stocks.

Above, I said the stock

market was on the verge of
“splintering.” What do I mean
by this?
For the answer, let’s think back to the late ‘90s
and early 2000s.
Bolstered by the potential applications of the
internet, technology companies were seeing
unprecedented returns. On December 16, 1998,
Henry Blodget, head of the global internet
research team at Merrill Lynch, predicted that
Amazon, which was trading below $250, would
hit $400 within a year. The company shot past
$400 within two weeks.
But I bring up the dot-com era to illustrate
another point. It’s true that stocks got hit hard.
But were there winners and losers? Absolutely.
Consider the examples of Pets.com and Amazon.
Pets.com was the poster child for dot-com
insanity. The company spent twice its yearly
revenue on a single Super Bowl ad!
Obviously, that commercial didn’t bring in
two years’ worth of revenue. The company was
bankrupt within months. Any investors who
bought into the hype lost everything.

A young tech company called VA Linux Systems,
went public on December 9, 1999. The stock
climbed 698% in one day.
I could go on and on. But we all know how it
ended. In late March 2000, the Nasdaq began
a momentous crash. The index fell 78% in the
next 30 months. Roughly $5 trillion in market
capitalization was lost. It was, and remains, one
of the worst market crashes in history.
Now, to be clear, I do not predict we will see a
market-wide meltdown like we saw during the
dot-com bust. In total, I predict we could see
another drawdown of 20%-25%.
But compare that to Amazon…
Amazon went public on May 15, 1997. At the
time, its enterprise valuation was $438 million.
It generated $147.8 million in revenue that year
and a mere $2.7 million in free cash flow in 1998.
In other words, Amazon went public when its
best growth days were still ahead of it. And
anybody with a brokerage account could have
bought shares.
On a split-adjusted stock basis, Amazon rose
from $1.54 a share to over $3,000 today. That’s
an incredible 180,000% return on investment.

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Here’s the thing. It didn’t
matter if an investor bought
at the precise bottom. Any
investor who bought Amazon
at any time during the late ‘90s
or early 2000s would now have
amassed an incredible fortune.

I know what we may be

thinking. That was an isolated
incident. But it wasn’t…

Instead of buying eToys, which

plummeted from $80 down
to $0.83, an investor could
have bought eBay and made an
incredible return.

Instead of buying Webvan — a

precursor to food delivery that
was decades too early — an
investor could have bought
Google. Again, incredible
returns were made.

As I said, during the dot-com

era, there were winners…
and losers. That is the perfect
analogy for today.

Do we want to own the

equivalent of Pets.com? Or do
we want to own Amazon?
As an investor, we need to be on the ride side of
this splintering. And that’s because the world has
changed in an important way.
And hardly anybody has realized it…
The Black Swan
When COVID-19 began to spread globally, many
analysts referred to it as a “black swan.” In
other words, it was one of those rare events that
dramatically changes the course of history.
I disagreed.
Society has been dealing with global pandemics
and coronaviruses since the dawn of time.
COVID-19 was not the first. It won’t be the last.
The real “black swan” event was our reaction
to the virus – the global economic lockdowns
and new social practices like social distancing
and contactless transactions. This dynamic has
pulled forward some tech trends by five to ten
years.
For example, we’ve been talking about
teleworking for the last 20 years.

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But what has happened over
the past two decades?

Organizations and their

management teams became
even more centralized, and
urban centers grew. Companies
and managers were reluctant
to have their workforce go
remote.

After all, managers felt they

couldn’t control and manage
their employees if they couldn’t
“see” what they were doing all
day long.

But now they’ve been forced to

change.
As recently as March, it was estimated that
almost 6 out of every 10 Americans were working
from home. And this trend will persist even after
the pandemic passes.
Consider Pinterest (PINS). The company
recently forked over nearly $90 million to break
its contract on a San Francisco office complex.
It won’t need the space in a remote work
environment.
Or consider e-commerce.
Earlier this year, many online retail categories
showed a 74% increase in online orders
immediately following the economic lockdowns.
And look at the above chart. U.S. e-commerce
as a percent of retail sales recently shot up 36%
quarter on quarter and an incredible 49% year
on year.
But even with this spike, e-commerce still only
accounts for 16.1% of total retail sales. This trend
is far from over.
Let’s consider one more example.
Earlier this year, Nokia (NOK) released data
saying that most wireless networks around the
world see 30–45% growth in traffic over a year.
But peak usage jumped 20–40% over a period of
just four weeks during the lockdowns.
These numbers are beyond crazy. And it’s
all because people have been working and
entertaining themselves from home.
Video-conferencing traffic – for both work
and socializing – spiked 300%. Gaming traffic
exploded 400%… because the kids were staying
home from school… And let’s be honest, a few
adults are having fun gaming at home too.
To put this growth in context, network data
traffic would more than double every 12 months
if this persists. We are talking about exponential
growth. And it is overwhelming networks all over
the world.
These are not one-off occurrences. This represents
the very beginning of a multiyear trend that will
reshape how we work, shop, and communicate.
[The companies powering these trends will be
some of the best investments in the years ahead.

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I recently put together a presentation where I
reveal the top stocks to own today. Go right here.]
It may sound strange to say that anything “good”
has come from COVID-19 and the economic
lockdowns. But for some technology companies,
this is the moment they have been waiting for.
Technology executives have been “lying in wait”
for a catalyst like this. They needed a trigger to
“force” the mass adoption of their products and
services. This is that trigger.
These companies will represent some of the
best investments for the decade ahead. But as I
mentioned above, every major market shift has
winners… and losers.
Avoid this Toxic Tech Stock
Above, I used the comparison of Amazon vs.
Pets.com to demonstrate the winners and losers
of the dot-com age.
Today, the winners will be fairly valued
companies powering the post-COVID economy.
But there are plenty of stocks to avoid as well. I
refer to these as “toxic stocks,” and they could be
sitting in your portfolio without you realizing it.
And if I were to highlight just one toxic stock, it
would have to be Zoom Video Communications
(ZM).
Zoom is the poster child for an overhyped,
overvalued tech stock. Now, Zoom has some
great technology for videoconferencing
applications.
And when the pandemic lockdowns began,
millions of people began using Zoom. Businesses
use it to conduct meetings and interviews.
Schools use it to deliver remote lectures. Even
my team and I use Zoom’s product.
And people connect with friends and loved ones
through Zoom. The “Zoom happy hour,” where
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people grab a drink and chat, became a cultural
event. And people of all ages use Zoom.
Zoom arguably has the best videoconferencing
platform. It has higher customer satisfaction
ratings than its competitors. And its number of
daily meeting participants rose from 10 million
in December to over 300 million as of this
writing.
But user growth alone doesn’t mean it will grow
into its valuation.
As of this writing, Zoom has an enterprise value
of nearly $80 billion. That puts Zoom’s valuation
at an EV/sales around 90.
No large-cap tech stock should ever trade a
valuation that high.
With an EV/sales ratio around 90, the first time
Zoom misses its growth targets, Wall Street will
unmercifully sell off the stock.
I wouldn’t touch this stock until its EV/sales
ratio falls below 7. At 7, Zoom would trade more
in line with companies that have a similar growth
and profit profile.
To get there, Zoom would need to fall 92%.
And that makes Zoom potentially the most toxic
tech stock anyone can own.
Zoom may be a particularly bad example of a
“toxic stock,” but it’s not alone. There are several
stocks trading at absurdly high valuations. Based
on my analysis, they are all poised for a painful
fall.
Are these stocks hiding in your portfolio? Go
here to find out more.
The Second Wave
The name of this report is “The Second Wave.”
What — precisely — is the second wave?
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The second wave is the second round of selling As investors, it’s imperative that we are on the
that I believe must inevitably follow the first right side of this splintering. The decisions we
wave we saw in early 2020. And it is this second make today will determine if we profit in the years
wave that will cause a “splintering” in stocks. ahead or suffer potentially catastrophic losses.

Some — the companies powering a post- I recently put together a special presentation
COVID world — will become incredible buying to show readers how to be on the right side of
opportunities. market history. If you see the evidence that I see,
then I encourage you to go right here to prepare.
Others — like the “toxic stocks” — will crash
hard. Some will even go completely bankrupt. Regards,

Jeff Brown

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