French author Gustave Flaubert said it best in the mid-1800s…
“Le bon Dieu est dans le détail.” Or in English, “The good God is in the detail.”
The point is… whatever you’re talking about or doing, the details are critical.
To show you what I mean, consider these three (seemingly unrelated) recent events…
First, in December, the National Highway Traffic Safety Administration started looking into self-driving taxis from a unit of General Motors (GM). Several taxis stopped suddenly without any known reason in San Francisco. And other cars rear-ended them.
Second, earlier this month, about 6.5 million people watched the Love Is Blind reunion special on Netflix (NFLX).
The problem was that everyone expected a spectacular live event. But a “bug” messed up Netflix’s setup. So the plans to go live were scrapped. Folks instead watched a taped event.
And finally, I tried to get my Amazon (AMZN) Alexa to read Midaq Alley to me through its Kindle Assistive Reader function. Egyptian Nobel Prize-winning author Naguib Mahfouz wrote this 1947 classic novel.
But Alexa couldn’t recognize the way I said “Midaq.” So after several attempts, I gave up. I opened my mobile app and tapped on a visual icon to read the book instead.
It might not seem like it at first. But as I’ll show you today, these three recent events are deeply connected. It all comes down to the details – the thing connecting them together.
And as you’ll see, the details lead us to consider following a secular trend in this space…
In short, I’m talking about the software industry.
Blue chips like Microsoft (MSFT), Adobe (ADBE), and Oracle (ORCL) are well-established market superstars. And these days, regular folks use software as routinely as paper towels.
But the three recent events I mentioned show us that we can’t be complacent. They’re all related to various “bugs” within the software.
Software is an ever-evolving industry. It’s not a “set it and forget it” type of business.
And I bet there were a gazillion more bug-related recent events like the ones I mentioned. Just think about all the app updates on your phone. Notice how many cite “bug fixes.”
Software problems can be much worse than harmless bugs, too. They can be costly – or even deadly…
For example, back in the late 1990s, the $165 million Mars Polar Lander probe didn’t make its final landing. The likely cause was a software defect that shut off its engines. And in 2018 and 2019, software-usability flaws caused a pair of fatal Boeing 737 Max crashes.
Let’s face it, folks…
Programming is hard. And there’s always room for more (and better) moves in this space…
Artificial intelligence is barely off the ground. Imagine how much coding, revising, and bug-fixing will happen in the coming decades. The same thing is true with augmented reality.
So ultimately, it doesn’t matter whether the economy is weakening or not. And it doesn’t matter if a lot of companies scrap or tweak their tech projects.
Software is here to stay. It will remain hot for years to come. It’s a secular growth area.
The Power Gauge sees that, too…
Today, our one-of-a-kind system rates 274 software companies. Most of these businesses (157) earn “bullish” or better rankings. And only 15 rank as “bearish” or worse.
Even better, the Power Gauge is “very bullish” on a software-focused exchange-traded fund (“ETF”) today. Here’s the breakdown of the SPDR S&P Software & Services Fund (XSW)…
Unlike some other SPDR ETFs, XSW isn’t heavily concentrated in a few big companies.
Industry giants Microsoft, Adobe, and Oracle combine to make up only about 2% of XSW’s assets. And large-cap stocks as a whole make up only around 24% of the ETF’s portfolio.
That’s a good sign…
Based on history, I suspect the future software leaders are lesser-known names today.
So I like XSW’s approach. And combining that with its “very bullish” Power Gauge rating is even more encouraging for us as investors.
Gustave Flaubert would be proud of us. As he said, “Le bon Dieu est dans le détail.”
Good investing,
Marc Gerstein
