If you’re a technophile, there’s a fast expanding array of things to get excited about.
Synthetic biology, robotics, materials science, artificial intelligence, nanotechnology, quantum computing & (more recently) superconductivity are some of the more promising domains where very real progress is being made.
Once in a species breakthroughs no longer feel as far fetched as they used to.
And progress in one area tends to feed-off and reinforce advances in another; a mutually catalyzing process that promises to usher in a new technological golden age for humanity. (Or, potentially, a technological dystopia — but let’s stay optimistic!)
None of us are ignorant to the relentless march of scientific progress. In our own lifetimes telecommunications and computing technologies alone have irrevocably changed the world, not to mention all of the advances in medicine, manufacturing, energy and agriculture.
What’s less obvious is how the rate of change is increasing. When you step back from the usual day-to-day, year-to-year vantage point, you start to see “J-curves” everywhere. That’s what technologies that obey power laws create.
Niels Bohr nailed it decades ago, “Technology has advanced more in the last thirty years than in the previous two thousand. The exponential increase in advancement will only continue.”
And exponential things can be hard to wrap your head around. As Ray Kurzweil has said “Our intuition about the future is linear. But the reality of technology is exponential, and that makes a profound difference. If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion.”
As investors, it is hard not to get more than a little excited about the potential. All kinds of industry disrupting or, indeed, industry creating opportunities seem to be springing up all over the place. The returns could be truly epic for those that manage to back the next big thing.
At the same time, there’s guaranteed to be plenty of false starts, dead ends and delays. It’s probably fair to say that more people will lose money betting on promising new technologies than there will be those that profit from it.
There’s a few reasons for this.
The first is that technological breakthroughs — even those that end up delivering on their early promise — don’t offer a straight path to value creation. Something best described by the Gartner Hype Cycle:
People just get way too excited, way too early. It takes time for a technology to mature; especially in a commercially viable way.
To make matters worse, the increasing pace of change makes it harder for companies to sustain any meaningful moat. A point that Howard Marks made a couple of years ago. The leading tech companies of 2043 are likely names we haven’t even heard of yet.
So what do you do?
If you find the lure of investing in new technologies difficult to resist (as many of us do), here are a few things to keep in mind:
Don’t believe the hype. Most new and exciting technologies will never make it out of the lab. You don’t want to be a luddite, but it’s worth having a healthy degree of skepticism when it comes to the latest “breakthrough”.
You don’t need to get in on the ground floor to do well. It might feel like you’ve missed out on all the upside if you wait until a clear market leader has emerged, but often there’s still lots of blue-sky to be had. In fact, from a risk/reward perspective, the investment potential is often superior at that point anyway.
Valuation matters. It’s entirely possible to overpay for a company even if it does deliver world-changing technology. You don’t want to be overly fussy when it comes to price if something has big potential, but you really do invite loss when you ignore valuation altogether.
Expect a rough ride. This is true for equity investing in general, but you can expect especially extreme volatility when it comes to companies that are trying to shifting paradigms. Even when they do so successfully.
Don’t fall in love. Expect lots of predictions to fall short — even the ones made by very smart and experienced insiders. Once it’s clear that things aren’t unfolding as expecting, cut and run. And remember…
You only need to be right once. If you’re chasing moonshots, it only takes one correct call to change everything. Provided, of course, you aren’t silly enough to “take profits” just as things start to hockey stick.
Finally, it’s worth remembering that history always tends to unfold in wild and unpredictable ways. The 1950’s vision of the future looks farcical today. Like Peter Thiel said, we wanted flying cars, but instead we got 140 characters.
No doubt future generations will giggle when they look at our current expectations for the future.
By all means, dream big and invest in a vision for the future that excites you. But be humble, remain objective and stay strong.
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