The software sector, long the darling of Wall Street, is now experiencing a drastic fall in share prices. The cyber security sector has been hit particularly hard. What at first glance looks like a normal market correction is turning out to be deep concern about an existential threat from the next generation of artificial intelligence.

1st Anthropic Myth: An AI that is too dangerous to release

The main trigger for the uncertainty is the AI lab's announcement of its new model, Claude Mythos. Unlike previous AIs, Mythos is so powerful at identifying software vulnerabilities that Anthropic has refused to make the model available to the public.

* Autonomous exploits: The model has found thousands of "zero-day" vulnerabilities in all common operating systems and browsers within a few weeks - completely autonomously and without human guidance.

* The sandbox breakout: In internal tests, the AI managed to break out of a secure, isolated test environment (sandbox), gain Internet access on its own and write an email to the researchers to demonstrate its success. Some of the security gaps that Mythos found had remained undiscovered for over 27 years.

2. the cyber security business model is under pressure

Companies like ($QLYS (-6,19 %) ), ($CRWD (-6,72 %) ), ($ZS (-6,49 %) ) and ($PANW (-8,17 %) ) are among the biggest losers on the market today. Investors' main concern: what is the value of current security software if an AI can break down barriers that have been considered secure for decades in the space of one night?

The fear is that the defense technologies of established companies could be devalued virtually overnight by AI-driven attacks before they can sufficiently adapt their own products.

3 "Project Glasswing": The race against time

To prevent global security chaos, Project Glasswing has been launched. This is a defense coalition with partners such as Microsoft $MSFT (-1,82 %) Google $GOOG (-2,22 %) Amazon $AMZN (-1,93 %) , Apple $AAPL (+0,25 %) and leading security companies $CRWD (-6,72 %) ( 45 companies in total )

The aim is to "harden" the world's digital infrastructure with the help of Mythos before similar models (e.g. from hostile states or as open source) become generally available. Experts estimate that this time window is only around 6 to 12 months before open source models reach a similar level.

4. massive shifts in the market

While traditional software shares are falling, the figures for AI pioneers are pointing in the opposite direction. is currently valued at around 380 billion dollars, with sales having jumped from a 9 billion to a 30 billion dollar run rate in just three months.

For investors, a fundamental selection is currently taking place:

* Crash: traditional software providers that could be replaced or made vulnerable by AI.

* Growth: Platforms that control the "intelligence" or provide the necessary hardware (chips), such as $NVDA (-1,52 %) or $AVGO (-4,04 %) .

Conclusion

Today's sell-off is not a sign of general economic weakness, but of technological disruption. If an AI is able to analyze and circumvent the security architecture of the last 30 years in a matter of hours, the cards in Silicon Valley will be completely reshuffled. The line between the winners and losers of the AI revolution is now painfully clear.

Here is a video about it

https://youtu.be/gimB1zAWsR8?is=EjU0LTXT4_lAOpTc

While I'm struggling with the terrible controls on an old machine $SIE (-1,31 %) control system, I bought a few shares $UNH (-1,66 %) purchased.

Today I also bought 1× $MUV2 (+0,18 %) 5× $QCOM (-2,78 %) & 10x $QLYS (-6,19 %)

Greetings from Warsaw 🫡

$QLYS (-6,19 %) Qualys

Second initial purchase in the cybersecurity sector

.... is a pioneer and leading provider of cloud-based security and compliance solutions for companies and organizations. Founded in 1999, the company was the first to deliver vulnerability management solutions as applications cloud-based i.e. over the Internet with a so-called "Software-as-a-Service" model.

Investment philosophy, "diversification" and dividends

Hi all, as this is my first slightly larger post I would generally appreciate some constructive feedback.

First something About Me

I'll be 22 in a month and I've been active in the stock market for about 2 years now. After a lot of back and forth, I can almost say that I have tried every strategy - but I never really felt comfortable. One learns from mistakes, and I have made many of them.

But what I have also done is to spend countless hours, days and weeks with books, videos, shareholder letters and internet research. I was particularly fascinated by the investment approaches of Terry Smith and the way of Joseph Carlson on Youtube.

My goal quickly became clear, I don't want to have thousands of companies in my portfolio that I don't know, understand or fully support. So an ETF focus was off the table.

Thereupon I built my own investment philosophy, which I would like to present to you in the following.

If you want to know more about me and my goals, there might be another article with a portfolio presentation soon :-)

First I would like to explain to you why I do not believe in diversification hold:

A quote from Warren Buffet is well known: "Diversification is protection against ignorance. It makes little sense if you know what you are doing."

However, a quote from one of the world's best investors alone is unlikely to convince everyone. Studies also support Buffet's view. The advantages of diversification decrease very fast and the gap between market risk and total portfolio becomes minimal from a portfolio size of 20-25 companies - 25 companies give you all the advantages of diversification, more positions only worsen your performance and overview. (Figure 1)

Because concentration delivers better performance. Fund managers who concentrate their knowledge in a few companies deliver better results than more diversified managers. (Figure 2)

Investment philosophy

I want to outperform the market, so I look for the best companies. What makes good companies?

Companies with competitive advantages (moats) outperform the market (Figure 3), and they do so because they have high returns on capital. My first metric for evaluating quality of a company and with a high value in my company analysis is ROIC (Return on Capital Invested). I look for companies with at least 10% ROIC. (Figure 4) Furthermore I want high ROCE (Return on capital employed) and high ROA (Return on Assets) figures.

This directly eliminates some companies and also whole sectors, namely exactly those in which it is not worth to invest anyway. Why is this so?

There are sectors that historically outperform the market (Software, Consumer, Healthcare) - on which my focus is -, and sectors that consistently underperform and are not considered in my investment approach (Banking, Energy, Insurance, Mining, Utilities, Airlines) - just compare the sectors with the main index ;-)

Consumer goods, healthcare and software companies perform better because they generate sustained profits, so they remain profitable even during economic downturns. This allows for consistently high returns on capital.

Next, a look at the margin here I would like to see high Gross Margins >60%, which are also a good indicator of a competitive advantage, and a high Profit Margin, which is an indicator of the efficiency of a company's value creation. However, the most important margin for assessing profitability is the FCF margin.

A company's focus should be maximally on Free Cash Flow, we should invest in companies that are as profitable as possible. In the long run, the share price follows the Fcf/Share.

Beyond that I don't want any debt, any company with Debt/EBITDA > 3 flies right out, preferably anything less than 2.

In terms of growth, I look for stable and good EPS and revenue growth, but FCF growth has the highest priority.

The higher the better, the more important the key performance indicators are.

My minimum benchmarks for the most important metrics:

• ROIC > 15%, ROCE > 15-0%
• Gross Margin > 60%
• Profit Margin > 20%
• FCF Margin > 20%
• Debt / EBITDA < 3, preferably < 1
• FCF 5Y CAGR > 10-15%

(Not all of my companies always meet every metric, but I have built my own score where a minimum score must be met and by score I set the "Conviction" to a company).

Buy & Hold and long-term investing outperforms

As long as a company continues to reinvest its capital at high returns there is no reason to sell. (Figure 5)

What about dividends?

Some of my companies pay a dividend, others don't - I don't put much emphasis on dividends, and will definitely not put bad companies in my portfolio just to get a payout in a given month ;) Dividends should be minimized if capital can be reinvested at high rates of return. At my young age and with a long term investment horizon the focus should be on yield, in old age I will also shift to dividends ;)

The most important thing to conclude: Invest in profitable companies that you UNDERSTAND

A few final tips:

• Don't chase trends, they fade away
• Do not be blinded by dividends
• Don't care about macroeconomics, invest in companies - not cycles
• Market timing is impossible
• Look for established companies, not one-hit wonders
• BUY GOOD COMPANIES - DON'T OVERPAY - DO NOTHING (Terry Smith)

My current investable universe:

$ADBE (-2,65 %)
$NVO (-1,26 %)
$CUV (+0,16 %)
$CDNS (-1 %)
$ASML (-1,11 %)
$VRTX (-1,75 %)
$V (+0,58 %)
$MA (-0,13 %)
$MSFT (-1,82 %)
$QLYS (-6,19 %)
$MKTX (-0,1 %)
$KLAC (-3,72 %)
$GOOGL (-2,33 %)
$REG1V (+2,97 %)
$TNE (+3,7 %)
$ENX (-0,3 %)
$EW (-1,77 %)
$VRSN (-0,74 %)
$FICO (-0,36 %)
$FTNT (-7,17 %)
$NEM (+0,83 %)
$MONC (-2,91 %)
$CSU (-3,1 %)
$6861 (+0,08 %)
$ENGH (-2,18 %)
$MC (-1,51 %)
$AAPL (+0,25 %)
$6857 (-7,17 %)
$7741 (+1,26 %)
$PAYX (-0,22 %)
$MTD (-1,2 %)
$TXN (-0,48 %)
$OR (-0,46 %)
$ZTS (+1,03 %) (Companies I watch, in my portfolio I have only 8 of them).

That's it from me for now. Please leave me some feedback and share the post if you like it :-)

What would you like to hear from me next? More about free cash flow? Portfolio presentation? Company presentation? My slightly different valuation approach, far away from P/E?

Some of the illustrations are from a slightly smaller fund ("Long Equity Investing" on Twitter - can only recommend you) or from Terry Smith's Shareholder Letter.

No investment advice

sounds interesting. i must take a closer look

Every morning I go through the newsletters in my email inbox and there is always at least one new hacking attack. 😅

I had looked at Qualys before, revenue and profit have been pretty stable and good the last few years. Also growing fast as well. 👌🏼