Nov 5, 2020
As counter-intuitive as it may seem, most of the companies that push us into the next technological revolution deliver poor investment returns. Today we look at current and historical data to show why this is the case but first, we chat about the top financial news of the week. Borrowing heavily from Carlota Perez’s Technological Revolutions and Financial Capital, we then explore how the links between tech revolutions and investing adhere to a consistent model. Following this model, we discuss how our current information-led revolution is as impactful as revolutions experienced in previous generations. We touch on the factors that lead to innovation, historical perspectives of technology companies, and the many investing phases resulting from tech revolutions. Despite making for poor returns, we talk about why the frenzy of investing that accompanies innovation is good for that industry and leads to a golden age of tech adoption and growth. A key takeaway, we dive into how investors are paying too much for the expected growth of new companies and that there is little to no link between massive growth and high stock returns. From guessing the next IPO winner, we move to our planning topic of the week — how to be a successful household CFO. We close this episode with our bad financial advice of the week. There’s a lot of pressure in the market to invest in tech. Despite that, tune in to hear why you shouldn’t invest in the next technological revolution.
Key Points From This Episode:
- Hear about host Benjamin Felix’s burgeoning 3D printing addiction. [0:0:06]
- Sharing listener feedback and messages from the Rational Reminder community. [0:02:02]
- Robinhood and why users are treated as the product, not the customer. [0:04:33]
- News on what might be the largest cash raise in IPO history. [0:07:25]
- How most ETF assets are in products that were launched prior to 2015. [0:09:24]
- Benjamin shares details about his project exploring the value of investing in tech revolutions. [0:11:05]
- Modelling the consistent sequences that technological revolutions follow. [0:14:38]
- Why current tech revolutions are as powerful as those experienced in previous generations. [0:16:55]
- Which common factors lead to tech revolutions. [0:18:31]
- Looking at historical examples of innovations and the performance of tech companies. [0:20:35]
- Why innovative big companies become unable to lead the next tech revolution. [0:23:18]
- How explosive growth and a frenzy of investment is common during early tech breakthroughs. [0:29:30]
- Signs that our current tech bubble has begun to pop. [0:34:45]
- The benefits of investment frenzy phases for tech industries and society as a whole. [0:36:15]
- Exploring what happens after phases of investment frenzy. [0:38:10]
- Evidence showing that investors pay too much for the expected growth of new companies. [0:42:42]
- Why there is no link between massive industry growth and stock returns. [0:50:00]
- Applying lessons from our discussion to our current investing environment. [0:52:03]
- Why you probably shouldn’t put your money in the technological revolution. [0:58:04]
- How people operate as unofficial CFOs within their households. [01:02:45]
- The many tasks that household CFOs need to perform. [01:05:20]
- Bad advice of the week; swap your bonds for dividend-paying stocks. [01:10:42]
- Why increasing inflation may be a key post-pandemic government strategy. [01:15:40]