- Innovative investing philosophy VS conventional approaches.
- Industry 4.0:
- Dot-com bubble VS current date:
There are many different investment philosophies, including deep-value investing, growth investing, dividend investing, and more recently an uprise in innovation investing.
– What is innovation investing?
Innovative investing is a philosophy that is centred on investments within fairly valued, fundamentally undisputable, and disruptive companies within markets. Through this new philosophical investment approach, smart-investors have been able to gain investment returns that were previously deemed as impossible.
The issue with conventional methodological investment philosophies is that: through the societal consensus shift, and introduction to Industry 4.0, there is a danger of limited adaptation from an investment philosophy, which thereby can lead to inferior returns. Darntons believes that, these recent and undisputable shifts within society have led us towards a major inflection point from a technological perspective. Company growth will no longer be linear. Growth will be exponential. This warrants an investment philosophical shift in perspective.
- Industry 4.0:
Within the past 10 years, there has been an unprecedented, and previously unpredictable move towards digitalisation. This trend is often referred to as the inception phases of industry 4.0 – or also known as the next industrial revolution.
Taking a glance at previous industrial revolutions:
- First revolution: emphasis on steam power, weaving and steel treatment. 1780 to 1890.
- Second revolution: emphasis on electricity, chemistry, combustion, engine usage and linear production. 1980 to 1990.
- Third revolution: focus on nano-technology, bio-technology, new materials, and recycling. 1990 – 2020.
Some examples of surreal investment opportunities that were present within these past industrial revolution:
The steam engine was one innovation that was created through the first industrial revolution. For clarity, the steam engine helped to power the revolution because, before steam power, most factories and mills were powered by water or man. Both of these resources were unreliable. This is in comparison to the steam engine, that would allow reliable power, and could be used to power large machines.
Interestingly, modern example that demonstrates the non-linear progress is the field of human genome sequencing. The Human Genome project, aimed to determine and map the set of nucleotide base pairs that make us human DNA. As reported by NHGRI Genome Sequencing Program, the cost of sequencing DNA bases has fallen majorly (more than 700,000 fold) since the first sequencing project.
These are non-trivial innovations, that presented unprecedented and exponential spurts in efficiencies and disruption. Getting in early and identifying not just only the right waves of innovation, however also the correct companies, can lead to exceptional returns.
- Dot-com bubble VS current date:
Taking a glance back to the early 2000s, within the investing scene, the dot-com bubble created one of the worst crashes Wall Street has seen to date. This crash was mainly due to the internet-craze – in other words – the ungrounded hype created through perceived innovative companies. Certain companies that were perceived to be highly innovative and thereby warranted a potential investment included Pets.com.
Pets.com was based on an Amazon-styled internet buying system, in which users ordered pet supplies online, and the company arranged the delivery. Whilst there were evident red flags for the business, including the economically unviable shipment of animal food and accessories, investors disregarded these claims – and pushed the stock higher. Pets.com completed their IPO, raising over $82.5M in 2000. Shares debuted at $11, however after failures to produce earnings and viable revenue, the company declared bankruptcy, and stocks traded at a low of $0.22.
There is an array of evident examples within the Dotcom bubble, in which innovative companies were misrepresented or perceived in a wrong manner. We believe that this has left deep scars unconsciously within the minds of investors when it comes to innovation. This means that, often traditional investors are overly pessimistic on innovative companies within markets, and we believe that this results in huge unrealised inferior investment results – through the disregard for innovation.
Overall, society is dynamic and changing. The past hype surrounding innovation should not be a precursor for trivialisation in regards to innovation now. Innovation has been present within the past 3 industrial revolutions, however now we are entering a fascinating period in which – innovative companies will produce exponential growth at a rate previously not seen before.