The Latest and Greatest

As investors, we all would love to invest in the next, latest and greatest innovation. The “next Microsoft.” That investment of nominal dollars that morphs into millions! Obviously, it is easier said than done. Many of the great innovations of the last century have changed our culture and society, but few innovative companies have resulted in great investments. 

 

In the early 1900’s, the automobile changed how and where we lived. Yet, the history of auto investing is a sorry tale that continues today with GM’s bankruptcy. In the 1950s, the viability of commercial aviation changed the way we conduct business and where we vacation. However, the commercial airline industry collectively has never made a profit! More recently, the explosion of internet certainly changed the world, (witness the use of Twitter in the Iranian protests) but most of the internet stocks turned out to be busts.

 

As investors, we all want the big winner. In reality, there are few big winners, as the juicy profits of the innovators quickly attract competition. Suddenly, the juicy profits are shared, and many players fail to survive. Perhaps a more important question for investors to ask is who will be the losers? What current holding in my portfolio will be a victim of a new technology or new product? Look back at history. When the automobile arrived, the blacksmith lost. When commercial aviation prospered, the “Dirty Dancing” Catskill vacation resorts (and I use the term “resort” loosely!) failed. Why go to the Catskills when Disneyworld is only a 3 hour flight away?! Why go to Bingo when the Rockin’ Rollercoaster calls?!  Why hold a business conference in Niagara Falls when what happens in Vegas stays in Vegas!

 

Today, I can offer two industries that are struggling to survive. First, the traditional media companies are in big trouble. The availability of free information on the internet has put the traditional newspaper and network television industries on the ropes. Why should I pay for stale, biased information when I can go to the internet for timely information provided by multiple sources…for free! Keep in mind that most internet providers have yet to figure how to make a profit either! Another example is the “smart phone.” The traditional suppliers of cell phones have been leapfrogged by the iPhone, the Pre and the Blackberry. Can the traditional media companies rebound? Perhaps. Can the traditional phone suppliers trump the iPhone? Maybe. But their old school business models are useless. They must reinvent themselves or they will die.

 

Investors should always be looking for the next latest and greatest investment. It’s fun to do. And it only takes one!  But, the more important question to ask is what companies in our portfolios will be the big losers!