Update - March 16, 2021

The Real Reason Prices Are Falling

I got an email yesterday that perfectly shows the power of “deflation leaders.”

It was about Google’s plans to mess up the world of higher education. It’s the free market’s response to a problem that’s plagued the nation for a generation… maybe longer.

Google, it turns out, just announced the details of its new professional certification program.

Thanks to the web giant and its online technology, folks can now get certified in one of three programs – project management, user experience design or data analytics.

All represent roles the company needs to fill with high-quality minds… a product that traditional higher ed hasn’t been creating enough of.

And it’s not just Google that wants these graduates.

There are more than 130 corporate partners lined up and eager to hire folks who complete the short six-month certification. Each of them will look at the certificate program as the equivalent of a four-year degree.

Best of all, Google’s program costs just $240.

That’s the price of some textbooks at most colleges. But if it’s still too much, the company has more than 100,000 scholarships ready to go.

Talk about deflationary pressure!

This is a huge move that should have the ivory tower crowd scared. It’s a direct threat to the future of many high-priced overpriced programs.

But it’s exactly why Google has soared 600% over the last decade while the S&P 500 is up 200%… and it’s why the Federal Reserve has played hell with inflation while trying to get it up to and, its latest goal, beyond 2%.

When a company can replace a $40K tuition bill with a single $240 payment, the cost of everything surrounding the old way of doing things falls. In this case, it puts pressure on everything from textbooks to salaries to rents… and probably even the price of beer in college towns.

It’s why I’ve overweighted the deflation leaders portion of our Modern Asset Portfolio. This tech-heavy piece of the market accounts for 30% of our total allocation.

That’s a lot. But clearly, it’s paying off.

A Deflation Winner

Take Alarm.com (ALRM), for instance. We added it to our portfolio last July.

Since then, it’s more than doubled the surge of the S&P 500 and is even beating Google by more than 70%.

Going back even further to Alarm.com’s public debut in 2015, we see it’s beaten the market nearly 5 to 1 and has outpaced Google by 64%.

That’s the real beauty of these deflation-creating tech stocks. They don’t need to dominate the internet to be huge winners. They simply need to make a better product that’s significantly cheaper than the traditional competitors’.

Alarm.com has.

You’ve surely heard about the boom in doorbell cameras. They’ve helped solve a host of crimes. And you may have even installed a complete do-it-yourself alarm system in your home.

If so, then you’ve almost certainly used the company’s technology.

Offices use its products to secure access to certain areas. Businesses use it to capture video footage of their property. Even some so-called competitors use Alarm.com’s technology. Honeywell, General Electric and even ADT have signed on because they know they can’t create a product as good… and as cheaply.

Rising interest rates have slowed the tech industry’s rapid ascent in recent weeks. I see it as a buying opportunity… a chance to buy deflation leaders at a short-term discount.

But we must be careful…

As rates get back to pre-pandemic levels, stock selection becomes critical. With the 10-year above 1.5%, the phase when we can pick any tech stock and expect a winner has come to an end. Now it will take smart due diligence and thorough research.

It’s not bad news, though. Not at all.

There are plenty of deflation leaders out there. They’re poised to outperform the market.

The hardest part is making sure you’ve got room in your portfolio for them.

Be well,

Andy