Faster, better, farther – what technological progress means for investors
Increasing digitalization is a key driver for technological progress. This gives rise to interesting opportunities for investing money. However, investors should be aware of certain facts.
Great creativity and deflationary potential are inherent to technological progress.
It is the invisible force that overtakes the old and develops the new. It creates advantages and opportunities, but also risks, for companies, consumers and investors:
higher productivity (which has barely risen in recent decades) for companies, lower prices or better quality for consumers. Investors should meanwhile note that of the world’s ten largest companies in 1980, only one is still ranked in the top ten (ExxonMobile), while today’s top three (Apple, Alphabet, Amazon) only came into being thanks to the technical advances of digitalization.
Digitalization promotes spread of technological progress
Since ideas can be shared with increasing rapidity, network effects also accelerate as soon as a certain level of user acceptance is reached. The telephone, for example, required around 75 years to gain 50 million users. It took 68 years for the airplane, 62 for the automobile, 46 for the light bulb and 22 for television to reach this milestone.
Yet YouTube, Facebook and Twitter needed just four, three and two years, respectively, to reach the same level of diffusion – and the Pokémon Go smartphone app a mere 19 days1. As trivial as they may seem, each of these developments, in different ways, was a step towards and symbol of the global technological development that now characterizes our daily life.
1 Some of this data is taken from Barry Ritzholtz, “The World is about to change even faster”, on Bloomberg, July 6, 2017.
There are three take-aways for investors
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First, we have just embarked on a journey of accelerating technological progress that is sweeping the globe across every sector. The spread of new ideas is increasingly decoupling from political trends, but trade and manufacturing are not. In many areas, network owners can particularly profit from natural monopoly revenues, just as companies can gain from marketing true innovations (“The winner takes it all”). |
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Second, technological progress often, but not always, has a deflationary effect. Investors must take a holistic view. The current low level of global inflation is largely a product of technological progress. But in the long term, it is also a monetary phenomenon and could begin rising again. In the markets, there are no one-way streets. |
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Third, the gap between winners and losers is widening. Consumers remain winners on the whole. Investors, on the other hand, must do more to hedge against losses, without abandoning the courage to invest in new things. Specialized collective investments can also be useful, as can a comprehensive active asset management approach. Our Supertrend studies provide investors with specialized analysis and investment recommendations that are professionally managed. |
