What You Need To Know About The Metaverse As An Investor

Hazelle

I’m sure by now, you guys have heard about this big word Metaverse and how Facebook has changed its name to Meta. According to Morgan Stanley, the metaverse is the next big investment theme and it sees an $8 trillion addressable market for the metaverse.

What is the metaverse?

If we google the definition, this is what we will get (accurate as of the date of writing this article).

“A hypothesized iteration of the internet, supporting persistent online 3-D virtual environments through conventional personal computing, as well as virtual and augmented reality headsets. Metaverses, in some limited form, are already present on platforms like VRChat or video games like Second Life.”

This isn’t the easiest definition to understand. In fact, it is challenging to give a definition that can encompass the full meaning of the metaverse. Let me put forth some of the key attributes of the metaverse.

Some key attributes of the metaverse

Metaverse will be a living experience. It is one where everyone exists together and lives in real-time and things exist synchronously for everyone.

This experience spans both the digital and physical world. It is not here to replace our physical world but more so as an expansion or convergence of our physical and digital worlds.

Metaverse will also be a fully functioning economy where businesses and individuals can create, own, invest, sell, and be rewarded for a wide range of “work” that produces “value”, as explained by Matthew Ball, the co-founder of Ball Metaverse Research Partners which maintains the index for the Roundhill Ball Metaverse ETF.

It is not just only about VR or a virtual world. It is more than that because the metaverse will not be a standalone online presence like an online virtual game.

Well, I have watched this full 1-hour YouTube video by Meta (which is Facebook). In it, it portrays how the metaverse will play out in education, entertainment, gaming, work, commerce and so on. Admittedly, I’m rather fascinated by how our lives may potentially change in the future. If you want to know more about their vision on how the metaverse looks like, you can just check out some of the shorter 1-minute videos that Meta has.

Metaverse no longer just a dream - Microsoft, Meta

If you think all these are just dreams painted by Meta or Mark Zuckerberg, I’m afraid not. The metaverse is no longer just a dream.

Microsoft, the company known for its suite of Office 365 products, is preparing to roll out Mesh for Microsoft Teams in 2022 for its metaverse concept. Mesh for Microsoft Teams combines the mixed-realities capabilities of Mesh together with the productivity tools of Teams for users to conduct virtual meetings to collaborate in immersive spaces.

In fact, Microsoft has been working closely with Accenture to build a virtual campus called the Nth Floor where the staff of Accenture from all around the world meet virtually and where the onboarding of new staff took place, especially during this pandemic period.

As for Meta, it announced its vision of metaverse and even rebranded Facebook to Meta. We also know that Meta had acquired Oculus in 2014 for the Oculus VR headset, which by the way the acquisition has received many negative criticisms.

So you may ask, who is going to win? Is it Meta or Microsoft?

Well, I don’t think I’m able to give a clear answer because I’m not a prophet! What I can say is that they are taking differentiated approaches based on their expertise.

We all know Microsoft’s offerings are more geared towards the enterprise side while for Facebook, it is social. Which is also what we are seeing now. Microsoft is taking the top-down approach to integrate metaverse into their enterprise product which is Microsoft Teams for consumers to be part of the metaverse through work. But for Meta, they are likely to be taking the opposite approach which is bottom-up by bringing together all the consumers from the social perspective and encouraging consumers to live, work, play and socialise in the metaverse.

Both approaches are incredible and this is not an either-or matter because what we can envision is that various big companies have to work together to contribute to the metaverse in their area of expertise.

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Metaverse requires the capabilities of more than just one company

Because the metaverse concept is so huge that we definitely need to have more than just Meta or Microsoft in order for it to happen. Meta or Microsoft alone cannot build the entire metaverse. We need to have the software companies and hardware companies. So what are some other key companies that may play an important role and profit from the metaverse?

Other companies that may profit from the metaverse

One of the companies could be Autodesk which is a company that provides softwares for architects, engineers and construction professionals to create precise 3D drawings for their design and manufacture. This ranges from buildings that we have, to animations used in media, entertainment and gaming. These are the softwares that could be a key element for building the metaverse.

Another company could be Nvidia. To supply the massive processing power required to power the metaverse, we will need the high-end GPUs for the AI or VR applications. In fact, Nvidia has its own metaverse for engineers which is called Omniverse – a virtual 3D platform which is targeted at the enterprise market for production teams to collaborate and work on 3D projects. So that could be the leading gateway for the developers of metaverse.

There are definitely more names than these. As far as we know, many companies are eager to be part of the metaverse, even the mouse!

META ETF

For those who prefer not to stock pick, there is an ETF for the metaverse, called the Roundhill Ball Metaverse ETF (ticker: META). But we do not have any meaningful data on the performance of this ETF as it was incepted only on 29 June 2021. Neither can we draw much insights from the charts of META ETF with the limited number of trading days since inception.

Here are the top 10 companies with the highest component weighting for the fund, with some very familiar names that we have mentioned above.

Source: https://www.roundhillinvestments.com/etf/meta/

Our views on the metaverse investment theme

While I’m excited to see what the future entails with the new way of work and play in the metaverse, I’m not going to be jumping into companies just because they are related in one way or another to the metaverse.

It would still take a number of years before we are able to see more substantial progress for the metaverse. Mark Zuckerberg has also envisioned that it would take at least 5 – 10 years before the metaverse goes mainstream. There are still many unknown factors that I cannot predict. Do not get me wrong, I’m not saying the metaverse is a dream or it will fail, I just don’t have the ability to predict future events.

I always believe that an investor’s role is not to predict which new or young growing company will dominate as the leader in the future. Or which newly-IPOed company will make a breakthrough. Because if I have the ability to predict, then I would have used this ability to achieve something even more incredible in my life! Instead, time will tell. We prefer to invest only in the companies with a strong track record of performing well and having good fundamentals.

Some people may laugh at us and say that we are losing out on the potential big gains but we are never anxious about riding on such new trends. Because there will always be pockets of opportunities in the markets, if you understand the markets well enough.

Our investing philosophy is also not about making quick gains or striking one-hit wonder investments. For those who have been following us closely, you will know that we strive to attain sustainable investments returns over the long term on a good risk-to-reward setup.

So if you were hoping that I was going to tell you to buy THIS or THAT stock to make a fortune, I’m sorry to burst your bubble! In fact, some of the top 10 companies in the META ETF above are not even in our stock investing watchlist currently. And for those companies which were originally already in our watchlist because of the strong fundamentals they have, we are constantly on the lookout for opportunities to profit from them.

If you are doing trading and not investing today, then yes, you can probably tap on the momentum of this metaverse investment theme in the short term to profit from it. Well, but that’s a different topic altogether.

About Hazelle

Chief trainer of The Moneyball Investors Playbook program and founder of The Joyful Investors, a financial education firm that seeks to help avid investors learn to invest better and make the journey a joyful one. I graduated with a first class honors in Bachelor of Accountancy from Nanyang Technological University (NTU) and started my auditing career in one of the Big Four. I believe that once we know how to build our wealth sustainably, we can then live our best lives ever.

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