Why Ram Parameswaran Says the World's Biggest Tech Stocks Are Ridiculously Cheap Right Now

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, you know, we talk a lot about some of the big trends of the last year, talk about housing, talk about various commodities that are in short supply. We've talked a lot lately about cryptocurrencies, but the other big theme of the last year was just like the incredible power and performance of big tech, defined broadly. I mean, it was just an incredible year for huge tech companies and e-commerce.

Tracy Alloway (0:45)

Absolutely. It's kind of weird because I'm thinking back to 2020, and this was the big story in markets. It was the sort of outperformance of the Feng stocks and how everything had just rotated back into these big tech companies. You know, Netflix was doing incredibly well because everyone was sat at home watching movies.

There was all this talk about how the COVID crisis had basically reoriented our lives even more towards tech. And now we've come out the other side of it, and there was some talk about the rotation into value, things like that. But I think in general, the big tech stocks have held up remarkably well, right?

Joe Weisenthal (1:25)

Yeah, they're doing really well. I mean, the stocks, you know, maybe they weren't as hot as they were a year ago at this time, but the companies are still doing very well. So, you know, I think even with the quote, normalization, unquote, of the economy, it does not seem like there is some sort of like shift away from tech. And I think there's kind of like two things going on. I mean, one is COVID, you know, obviously forced certain economic behaviors to go more online. And so you think, OK, Zoom video, a company like that, that obviously replaced a lot of in-person activity.

We're talking over Zoom right now. And then the other thing is, of course, this other theme, which is like the sort of great acceleration thesis, which is that all the trends going into the crisis seem to have just gotten like magnified and five years got condensed into one year.

Tracy Alloway (2:15)

Yeah. And I think that's probably what we're seeing right now with tech. I mean, this idea that we're all going to go into remote working. OK, maybe we're not all going to work from home forever, but there might be some sort of hybrid model. We've all gotten very used to ordering stuff off of Amazon. But that said, even though we talk a lot about the acceleration of trends that may be beneficial to tech, there are some things coming up that could potentially be challenging. So, for instance, we talk about the bottlenecks, the shortages. What do those actually mean for, I don't know, a company like Uber, right? Is it going to be able to get enough drivers?

Are we going to see that backlash against big tech from DC?

There are certain things coming up that could be problematic.

Joe Weisenthal (3:04)

Exactly right. Well, anyway, I'm very excited about speaking with our guest. We're going to be speaking with an investor in tech who's a very sort of big-picture-focused, big-ideas, concentrated bet in the space, someone who really sort of like thinks deeply about where it's all going, had some major winners. I'm excited to welcome to Odd Lots, Ram Parameswaran. He is the founder and CIO of Octahedron Capital.

Ram, thank you so much for joining us.

Ram Parameswaran (3:34)

Well, Joe and Tracy, thank you for having me. It's a real pleasure.

Joe Weisenthal (3:37)

Yeah, this is super exciting. Very excited to talk to you. What do you describe Octahedron? Because it's not like the typical fund. I know you have like very big handful of concentrated bets, but what do you describe exactly what is the structure of the fund? And your general approach to investing?

Ram Parameswaran (3:54)

Thank you, Joe, for having me. So let me start with a very big picture, the top down, which is what our mission is. So our mission is very simple. And we simply want to be the absolute best partner for the world's internet scale businesses. So what does that mean? So I've been obsessed with this idea of inner scale for almost a decade since I started working after business school at Sanford Bernstein, where my boss and I co-founded the internet team there. And we were quite well known on Wall Street for a couple of years because of very distinctive work on Amazon, where we kind of discovered through math and a bunch of our other analysis that hiding inside a five to six percent retail margin business was a 30 percent margin cloud business. We helped defend Google through the transition from desktop to mobile. And what I started realizing was, when investors start thinking about the traditional offline market, we just have a very narrow definition of TAM, which I have made so many mistakes off in the past. And in fact, one of my biggest mistakes in life is to having narrow definitions. That's number one.