STREET DOGS: Keep an eye out for software companies based in China

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The sector has few costs, and if the engineers are working from the East Asian country, margins are even bigger

One of the best places to be as an investor today is China. China I think has incredible advantages.

One of the hottest sectors to be in today is software. And what people like about it is that if you have a good software company like Microsoft, or even some of the smaller ones, you don’t really have a whole lot of costs. And there is no better business than a business without a whole lot of costs. The costs a software company really has are the engineers. Software engineering salaries today — for a good software programmer — are as high as what network engineers made 10 or 20 years ago, which is measured in seven and not six figures. I think this is where China is about to break out. And I’ll give you the example of two stocks. Zoom at its core is a telecoms company. It allows people to communicate with each other over the telecom network.

The other company is Agora. And in my opinion they’re capitalising on two trends: the first one is that what they allow is for people to talk to each other over a virtual telecom network, unlike AT&T. And the costs of telecom, which are the same for everyone, goes down over time. Their other cost is software engineering, and they’ve got that based in China. So I think they’re going to beat any of their Western competitors.

If you can find a software business today, where the costs are in China, I think you’ve got a winner.

 

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