When I woke up today, one of the first things I did was check my phone - and see that futures were down over 1% for each index. Several stocks were down 2% or more premarket.
After reflecting on the nice timing of a strong market drop the day after I launch this newsletter, I planned on what I was going to buy today.
Rarely do I see a market drop and think about selling, those days are in the past. But I was reading about Evergrande a couple days ago, explored some details of China real estate, found writing on Evergrande’s debt issues from several months ago, and saw their stock has been decreasing all year. That was my due diligence work, so when the stock market dropped and CNBC discussed Evergrande the entire day, I … just didn’t care.
Crashes don’t come from a poorly run company when everyone knew the company was poorly run, their bonds were priced for a default, the stock was priced for a default, and in-depth research was being released all summer long. However there are a couple of takeaways for long term investors, and product managers, to make:
Microservices should be utilized whenever possible.
The stock market is emotional
The most interesting news for my stocks received little coverage.
So what do microservices have anything to do with a Chinese property developer? Well, nothing. But the bonds and equity of Evergrande does highlight why microservices are essential. If you were to view the stock market as a product, then image Evergrande as a single function. That function threw out an error today, and almost every single part of the stock market “product” was negatively effected. If you were the product manager for the stock market, you had an awful day.
Unfortunately, the stock market is no where close to resembling a microservice architecture. Often, a single news item from a couple of stocks can bring down entire sectors or the entire market. The 10-year treasury can influence every stock and bond. Everything is connected and one problem is felt across the entire market. If the market acted as a microservice architecture, then we would’ve saw a couple of china stocks fall, some banks fall a bit, and everyone else unaffected. After all, does anything about Evergrande’s default influence the business of Salesforce?
For product managers and software engineers, this is a nice visual on why microservices provide value - when one thing breaks, the entire product doesn’t “go down” - either losing quality or shutting off. A fix is easy to make, and can be done by a product team - no need to collaborate with different departments to come to the conclusion that there is a problem and that it needs to be fixed.
Second, the stock market is emotional. One of the first books I read when I started investing was the “Adaptive Markets” by Andrew Lo. He argued that markets are created by humans, and humans are not rational, have emotions, have different goals, and can be wrong. If you ever heard of the efficient market hypothesis - then you would know his take is very controversial, but also common sense. Today was not a reflection of an efficient market - Amazon dropped 3.08% with no news other than Evergrande could default. But, people are scared, institutions trade based on their guesses of how other institutions will trade, and investors believe that a correction is incoming anyways, so might as well sell now. If you’re a long term investor, then today you just shrug your shoulders and carry on with your life.
The last takeaway - the only piece of market news that I read today was an IDC on Salesforce’s impact on the economy. The first sentence from the report write-up:
IDC forecasts that cloud-related technologies will account for 27% of digital transformation IT spending this year, growing to 37% in 2026, as businesses focus on establishing digital HQs to deliver customer and employee success from anywhere. Remote work, contactless customer engagement, and sustainability efforts are becoming more prevalent than ever, and IDC expects this trend will only continue.
The write up can be found here - https://www.salesforce.com/news/press-releases/2021/09/20/idc-salesforce-economy-2021/?sfdc-redirect=430
The write up continues with discussion of how Salesforce is driving revenue for their customers, how public cloud spend will double in a few years, and how there is a strong need for technical career training. I encourage any investor or product manager / software engineer to read this report (I shared it with my entire department). Digital transformation is a requirement to succeed, and will create many jobs, start-ups, and millionaires. Reports like these remind me how close companies like Salesforce, ServiceNow, and Microsoft are to consumer staples - businesses need these services to survive, and a developer in China defaulting will not change that.
Disclaimer: The above references an opinion and is for information purposes only. This information is general in nature and has not taken into account your personal financial position or objectives. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Past performance is not an indicator of future performance. This is not financial advice.