As Christmas sales loom, we face an endless array of
sparkly, shiny and occasionally innovative items. As
an investor, you run into a similar phenomenon that
requires you to ask, “Are investment offerings truly
innovative, or simply improvements to existing
technologies and services?”
Creating new products is far from a sure thing, of
course. In fact, a study of more than 500 executives
revealed that while almost one in five rated innovation
as a top strategic priority and two-thirds depend on
innovation for long-term strategy success, many
companies expressed disappointment in returns from
investments in innovation.
That said, investing in the right innovation – Facebook
and not Myspace, for instance – brings a bonanza.
Companies widely acknowledge that new products
drive real growth. Your best investment strategy may
well be firms’ unceasing need to move forward.
The history of your future
Consider the book Generations: The History of
America’s Future, published in 1991 and written by
William Strauss and Neill Howe. Although it has
nothing to do with investing and offered little
economic insight, its messages can be extended to
how we invest.
The book’s two primary messages: First, we tend to
get along better with our grandparents than with our
parents, or at least identify more closely with our
grandparents’ beliefs and behaviors more than with
than our parents’.
Second, each generation approaches development
and discovery in a different manner from that of the
preceding generation. One generation creates, and
the next generation extends or improves on the
Innovation or re-gifting?
For example, folks born in the 1880s invented many
things we use today, such as phones and radios. The
next generation, born in the 1920s, largely improved
everything they touched. The first generation made
the cars, and the next added air conditioning,
automatic transmissions and power windows.
Today, we see that baby boomers created many
innovative technologies that affect how we
communicate, such as cellphones and the Internet.
The current young generation makes the boomers’
innovations better, faster, cheaper and more
accessible. Suddenly, today’s business environment
seems flush with billionaires younger than 30.
Many of these young and rich entrepreneurs made
fortunes in relatively new technologies that didn’t exist
when they were born: social networking, mobile
applications and cloud-storage computing systems.
This phenomenon is both fascinating and important to
understand as an investor. In years past, 20-
somethings invented or improved, depending on their
generation. These people were often older than 40
before their voices resonated in global markets and
changed the world in general – and the business
The big money is in innovation
Today, innovation, introduction and acceptance move
at warp speed. Take cellphones, which Americans
hang on to longer than in recent times but still replace
(usually with an upgrade) less than every two years.
Changes range from easier access via emerging
technologies to ripples in capital markets. Speed and
change remain undeniable and important and
increasingly harder to ignore for long.
Recollecting the frenzy of your recent Christmas
shopping, did you notice the so-called new offerings,
and ask yourself if they were improvements on
existing products and services or true innovations?
The answer sheds light on the areas where financial
resources flow. Do capital markets invest in areas that
make televisions bigger and brighter? Absolutely.
Are manufacturers able to charge more for the
products? It doesn’t appear so. The big money seems
to be in innovations, particularly if you want to get
wealthy before middle age.
Something to think about as we invest.
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