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Summary

  • There is a $30B+ opportunity in mobile in the U.S. alone.
  • There are three options to invest in mobile.
  • You can angel invest, join a startup, or invest in public market stocks.

There is a $30B+ opportunity in mobile ads. And that's in the U.S. alone. As we've seen from the charts, time spent on mobile is clearly on the rise. Mobile is a huge platform shift still in the early stages of high growth. And more growth is coming as we quickly head toward 5B smartphones on the planet.

So, how does one invest in the mobile advertising trend? There are a few options.

Angel Invest in Startups

The best leverage you can have is likely through startups and private companies. We've all heard the stories of angel investors who made 100x+ on their investments. Or as my friend Howard calls it, searching for the Unicorn's Unicorn.

You could invest in startups yourself but this is risky, hard, and capital-intensive (although fortunately getting easier and cheaper). It's risky because most startups fail. It's hard because the time commitment is enormous. And it's capital intensive because to do it right you should really diversify your portfolio (10-15 companies).

Startups also often have minimum angel investments of $10-$25k. That means you're looking at a lower bound of $100k. And because of the risk, you really shouldn't be putting more than 10% of your investable assets into an angel portfolio.

I often refer others to Andy Rachleff's great post on angel investing. It covers why angels usually don't make money and advice for people who are going to do it anyway.

Join a Startup

The other option to invest through private companies is to join a startup. I often get asked for advice by people looking at mobile startups on where they should work. I think I usually disappoint them by recommending that they not to go work for a startup at all. The fact is, most people just aren't ready. I tell them to go for midsized companies with momentum instead, not startups.

Why not a startup? Well again, most startups fail. Their risk/reward ratios just aren't good. Good investors know the concept of risk/reward: You want the highest return for the least amount of risk. Why not apply the same sort of thinking when it comes to your career?

As a prospective employee it's important to think about whether the startup is de-risked yet. Chris Dixon has a classic post on this. In it, he says that the worst time to join a startup (financially speaking) is right after the first VC or Series A round. That's when the company has some momentum but hasn't proved it can reach real revenues or product-market fit.

But there are ways to de-risk it. Do your research. Talk to the company. Talk to their clients. Is it a team you really admire and believe in? Does the company have true product-market fit? Does it have real revenues? If you can say yes to all of the above, then I say go for it. This is what I've done twice now.

Let's not forget you also get to create lasting relationships and really learn the industry you are interested in. If you're only doing startups for the money then you're probably doing it for the wrong reasons.

Public Market Stocks

A third way to invest in the mobile growth trend is to invest in public companies and stocks. Active investing isn't easy. It takes a lot of time and effort to be a successful active investor (see "The Skills It Takes To Be A Great Active Investor").

But I do think it's easier than most make it out to be. First and foremost, you have to love it as a hobby and have a passion for it.

Second, you have to understand the catalyst and the why behind your investments. That is one takeaway I got from the great book Hedge Fund Market Wizards: If you don't understand why you are in a trade, you won't understand when it is the right time to sell. Which means you will only sell when you get scared.

The why behind what we've been talking about here is mobile growth trend, the rise of mobile attention, and the $30B opportunity for ad spends to catch up. So, what are some of the good public companies out there that are capitalizing on this trend?

I've taken a shot at putting together a portfolio of stocks on Motif Investing, which is a site that lets you find and invest in certain motifs. It's just an experiment for now but I've been impressed with it so far.

Here is my Mobile Growth Portfolio on Motif Investing, and here's the description for it:

This motif was built to capture alpha from the mobile growth explosion. There will be 5B smartphones on the planet by 2020. Mobile advertising is up 47% Y/Y, mobile commerce revenues are up 60% Y/Y. This motif invests in the platforms, publishers, ad tech, commerce, travel, etc. that are driving the mobile growth trend.

And here's a pretty cool Excel spreadsheet for the holdings.

I've separated out the portfolio into eight categories of public companies driving the mobile growth trend: the platforms, the publishers, the pipes, mobile advertising and ad tech, mobile commerce, mobile travel, mobile gaming, and early stage private companies.

I created the portfolio a few weeks ago and at a quick glance it's up about 3.4% vs. 0.7% from the S&P. The weighting is pretty subjective at this point. I went for less exposure to the highly volatile and hits based gaming companies and more exposure to the advertising companies and platforms. I also tried to get less exposure to the more volatile small caps. I'd love to hear any top-level thoughts or feedback on it.

Now, a big caveat here is that now might not be the very best time to invest. The stock market just this week hit record highs. Keep in mind that four out of five stocks move in the general direction of the market. As the market goes, so do most stocks.

Generally, you don't want to buy high and sell low. So two ways to think about this then. One is to control your risk beforehand. You can set up stop-losses (orders to sell once a stock reaches a certain point) so you don't lose more than you're comfortable with.

The other is to take a truly long-term perspective. As Warren Buffett said, "Time is the enemy of the poor business and the friend of the great business." I like to do a bit of a combination, a long-term view while still cutting losses around 20% or so -- just in case any one particular business really craters. In the next few weeks I'll try to do a deep dive into each of the categories and the stocks within each. Stay tuned.

Source: How To Invest In Mobile