Paul Mampilly has spent decades as an investment analyst, advisor and fund manager. He has become a trusted source of financial wisdom for some of the country’s wealthiest clients as well as having made famously outsized returns while running numerous funds himself. Paul Mampilly is also the author of the popular Profits Unlimited newsletter as well as True Momentum, Extreme Fortunes and other bestselling publications.
Over the last decade, Paul Mampilly has become keenly interested in the Internet of Things and how this transformative field is poised to radically reshape the way that people interact with the devices that define modern existence. He has stated that we are at the very beginning of a new paradigm in technology that may rival the Industrial Revolution in scope and scale.
Mampilly’s Little-Understood Investing Framework
Many people view those with proven investment success over decades as real-life wizards or shamans, somehow possessing magical powers that enable them to make sense out of the chaos of markets where others see only randomness and noise. Paul Mampilly certainly fits that bill. He was able to grow one fund under his management from $6 billion into $25 billion in just under five years. In another illustration of deeply penetrating market insight, he was able to post gains averaging 75 percent over two years. This last feat is made even more remarkable by the fact that he was able to achieve this incredible rate of return during 2008 and 2009, without taking a single short position.
But as Paul Mampilly will be the first to point out, he has no direct line to the gods. On the contrary, he employs only cold logic and mathematics to determine in which areas he will invest. There are, however, a few traits that can make someone like Mampilly seem mysterious. One of those is his steadfast investment discipline, never making emotional decisions and often going strongly against the crowd. Another is the fact that, like a high-priest of some ancient and mysterious order, Mampilly does know a few things that most ordinary people do not. And some of these things turn out to provide a powerful investment framework that can reliably produce strong results. But unlike a medieval priest, Mampilly is more than happy to let the world in on all of his little-known knowledge. In fact, he regularly writes a popular newsletter for Banyan Hill Publishing for that exact purpose.
One of the things that Mampilly knows that few others outside the highest levels of finance grasp is that, from a mathematical perspective, investing is not only like gambling; it is gambling. And that means that investors must focus on making good bets. Mampilly emphasizes that eliminating risk is neither possible nor even desirable. But risk does play a part in defining what is and is not a good bet.
Investing is not only like gambling; it is gambling.
Specifically, a good bet is one that maximizes the expected value of one’s capital while eliminating or severely reducing the risk of going broke. Mampilly isn’t looking to avoid ever making a losing bet; he’s looking to make a series of bets that will, on average, maximize his capital while ensuring that even the worst downswing doesn’t put him out of the game.
Finding Good Bets in the Challenging IOT Space
This mini-primer in Mampilly’s investment framework is necessary to understand why it is that he believes so strongly that the Internet of Things presents one of the greatest investment opportunities of the last 100 years even as it also faces stark and largely unresolved challenges, which are drivers of very high levels of risk.
Mampilly says that it is a near certainty that some Internet-of-Things sectors will experience major setbacks or even crashes in 2019 and beyond. He says that one of the areas where Internet-of-Things technology promises to add the most value is in the industrial sector, especially in manufacturing and logistics. However, Mampilly emphasizes that there are dire security challenges that, if not properly met, could end up killing demand for those applications until major players in the industry are convinced that their proprietary data and operations will be kept safe.
This high level of uncertainty, argues Mampilly, is a great place for astute investors to look for opportunities. As the saying goes, the riches are in the niches. And Mampilly says that a great strategy will be to look for highly targeted Internet-of-Things applications that have largely resolved potential industrial security issues in a narrow sector. Mampilly believes that, like in other technology-related fields, a patchwork of highly industry-specific solutions will eventually take form. These will be able to address the very specific operational, data and customer-facing challenges with which each industry contends.
Another area of both great risk and great potential reward in the Internet of Things over the course of 2019 will be how the many issues relating to edge computing are resolved. Currently, Mampilly says that there is an over reliance on centralized computing while running device networks. He says that this is going to very quickly prove to be unsustainable as Internet-of-Things devices are positioned to nearly double in 2019 alone.
As a result, Mampilly indicates that edge computing will become front and center in the race to create synergistic networks of largely autonomous devices. The rapidly increasing volume of raw data that these devices are generating, however, will increasingly make a centralized computing model too costly and too inefficient to sustain. To truly unlock the full potential of the Internet of Things, developers will need to create new edge-computing solutions that currently do not exist or are not widely adopted. Mampilly says that any company that can solve these fundamental computer-science and networking problems may be in a position to fantastically profit. But such bets, he says, will necessarily carry very high levels of risk.
Related: Paul Mampilly Still Believes in Tesla
Lack of Standards
Mampilly also points out that one of the most serious challenges confronting the current Internet-of-Things industry is the highly fragmented nature of manufacturing and the near total lack of universal standards for intercommunication between devices and networking protocols. He says that the Internet of Things is in a state very similar to the first railroads or the first mobile-phone systems. There is no agreed-upon standard, and every manufacturer is making proprietary systems. In the most short-sighted way, this may serve to protect manufacturers’ business. But it severely impedes the ultimate goal of total interconnectedness and the resulting synergies.
The creation and adoption of universal or widely used Internet-of-Things standards is something to keep a close eye on, says Mampilly. Just as the first railroad companies that adopted standard-gauge railways instantly began enjoying huge economies of scale, putting their competitors in a position of either adopting their standard or perishing, the Internet-of-Things operators who devise standardized protocols that see widespread adoption could be well-positioned to become the next Microsoft, Oracle or Apple. These firms, says Mampilly, could end up having legal monopolies on a platform that huge swaths of the market use, including device manufacturers and app manufacturers, just as so many PCs have been built to run Microsoft’s operating systems over decades.
All told, Paul Mampilly sees a bumpy ride for the Internet of Things in 2019. But he believes that that the kinks will be worked out. And after being forced into the blasting furnace of uncharted new technology, tomorrow’s great companies will emerge from the fire.
Learn More: Q&A with Paul Mampilly: Investing for the Everyday Man >>
