It’s well known that technology is progressing at a phenomenal rate these days. It seems every week there’s some sort of new technology or discovery being made. For instance, NASA has apparently created a new method of space propulsion called the EM Drive which should get us to the Moon in just 4 hours! Also for a long time, computing speeds have been doubling and costs halving every 18 months and many of the gizmos in Star Trek are either already in existence (mobiles and tablets) or may soon be a reality (Warp drive and force fields).
So the future looks bright and dandy. However, even though I think the next 10 years are going to be a perfect economic storm, I do genuinely believe that humans are resourceful and we’ll invent a way to combat these creeping threats of global warming, dwindling resources and lack of clean abundant energy/storage etc.
So yes, I think technology can and will only continue its phenomenal progress, especially with the wonder discoveries of Graphene and Silicene, but is it wise to invest in the tech world? My answer is ‘not really’. Didn’t see that one coming did you? 🙂 I think it’s rather risky to be betting on these new miracle technological developments and revolutions…here’s why…
Let’s say you could travel back in time all the way back to the early 1900s when aviation was just taking off. You’d know that eventually the world would be full of aircraft and you could perhaps make a fortune by investing in aviation companies. Well if you did, chances are, you’d end up broke! The amount of aviation companies that were set up and went bust is ridiculous and the entire aviation industry from the day of the first Wright Brothers’ flight to now has made a loss. In fact if you add up annual profits of the whole airline industry going back to 1948, you get a loss of $32 Billion.
Let’s say you then also travelled back a bit further in time to the birth of the car industry. Well, yet again, you’d probably go bust. Of the 230 odd car companies that were set up, only 3 succeeded and Ford was one of them.
I call this the Technological Revolution Carrot. At the birth of any new amazing tech, it’s very easy to get lulled into the spectacular future of whatever is being made/discovered. However most of the time, they tend to be commercial flops to begin with. Just have a look at mobile phones, the internet, portable tablets and Bitcoin etc. Yes there will always be the odd success, but it’s mostly failure. Even when Otto Rohwedder first invented sliced bread (well, a machine that sliced and packaged it), it didn’t sell a thing for 15 years! So it’s important to understand that it’s only when the tech becomes more established that the tech becomes a profitable asset/industry to invest in.
I’m being rather broad brush here. If you know what you’re doing, as in reeeally know what you’re doing within a certain sector, then sure, you’ll probably be alright. But for most people, it’s like moths to a flame. It usually ends in tears!
Also another thing to be aware of it the ‘Diffusion of Innovation’ curve created by Communication PHD Everett Rogers. This applies to general uptake of a new idea, product or service.
Here you have a bell curve and 5 main stages:
- The Innovators (2.5%) – These are the kind of people who camp outside the Apple store 3 days before a new iPhone is about to be launched.
- The Early Adopters (13.5%) – These people just ‘get it’. They’re not die-hards like the Innovators, but these people don’t really need selling to…they’re already on board. The Early Adopters and Innovators want and need to be first…
- The Early Majority (34%) – This is where the first bunch of mass public sit. They’re open-minded to a degree, but they won’t do/buy/adopt something until someone else has tried it first.
- The Late Majority (34%) – These people will eventually get round to it when it seems everyone else is doing/buying it and the idea is now more established.
- The Laggards (16%) – And finally these people are the Neanderthals. These are the type of people that still haven’t got a Facebook account or still use brick mobile phones etc. They’re closed-minded and stuck in their ways…
So the thing to remember when looking at this Diffusion of Innovation chart is that getting the Innovators and Early Adopters into something is easy. Once they know of something new, no matter what niche, they’ll be there. However the reason why a lot of companies fail to really grow and scale is because there’s a distinct gap between the Early Adopters and Early Majority. If an idea or product can’t breach that chasm then it’s game over.
Just look at Solar Panels, it was a commercial nightmare until the Early Majority got onboard and since then it’s been a booming industry. You can’t go anywhere these days without seeing them.
There’s a fantastic book called ‘Start With Why’ by Simon Sinek who talks a bit more about this but this chart also directly applies to investing. More specifically, investing into a completely new and alien industry. Examples of such would be 3D Printing, Graphene & Silicene, Shale and Cryptocurrencies etc. My suggestion would be to stay away from these new-fangled investments until the Early Majority are on board…because it’s only when this happens that the bulk of the Investment Funds around the world cotton onto them which would then give you the highest probability that your investment will be worthwhile. Otherwise you may end up parking your money into something that doesn’t take off for years or doesn’t take off at all. Just have a look at Virtual Reality technology, that’s done barely anything in 20 years, Shale gas & oil, simply the worst commercial flop in history over the last 20 years.
Whether you love him or hate him, Warren Buffett lead by example and refused to invest in the Tech Boom in the late 1990s. Valuations were astronomical leading into 2000/1 and he still shrugged off comments from investors saying he was stupid and he missed the boat…it was then those investors that later ate their own hat when the Tech Bubble finally popped. But fast forward to today, the tech industry is nailing it! There are all sorts of tech companies now that are dominating their respective markets, Tesla being the big boy.
So just to re-iterate my point, only invest in something that you truly 100% know the market/product and exactly WHY you’re doing it. If you don’t, it’s best to stand aside. It’s also worth noting that you really need to put that ‘Fear Of Missing Out’ monkey back in his box. Never feel like that when investing, opportunities come and go like buses so just wait for the next one to come along…capital preservation is everything! Treat it like it’s your only kidney!