Investing in Tomorrow’s Technology Today

Transformational technologies, as economist Joseph Schumpeter pointed out, do not advance the economy by consistent predictable increments. Rather, they disrupt and destroy, bankrupting entire industries by offering clearly superior alternatives.

Historically, however, these technological advances have rarely been recognized and welcomed when they first appeared. For the most part, they have been doubted by the general public. Most people didn’t understand the specific technology and believed, despite all historical evidence that scientific progress had finally leveled off. Often, powerful institutional forces resisted and attacked these emerging disruptive technologies.

Progress, however, cannot be contained. This was true even when the technologically advanced world comprised only the United States and few other developed nations. Today, with an international economy growing more rapidly than America and looking for ways to catch up, it is even more true…

Investing in these technologies wisely can lead even the small investor to great wealth. Let me show you how…

Take, for example, nuclear power. While reactionary anti-nuclear Luddites have managed to slow deployment in America, they failed in France and Russia. Now these states are moving rapidly to the next level, exploiting the vastly superior thorium nuclear potential to serve a rapidly increasing worldwide demand for electrical power.

In America, you can already sense a growing anger directed at the new age fantasists who promised us an economy powered by windmills, solar panels and corn ethanol. When gas prices hit $5 a gallon, you’ll see, up close and personal, how market forces trump ideology.

Governments and social forces have never, ever succeeded in bottling the genie of innovation permanently. Railroads, automobiles, electrification, telephones, radio, television, computers, the Internet and mobile electronics were all mocked as temporary or unimportant fads when they first emerged. Then, seeing they weren’t going away, these technologies were declared a mortal threat to civil society by powerful interests vested in the old technological status quo.

The real danger involved in trading transformational companies does not come from fluctuations or macroeconomic trends. Innovation always overpowers business cycles.

The danger is that a new technology will be leapfrogged by some unexpected newer technology. In fact, this is the danger inherent in all transformational investing. A transformational technology can be made irrelevant by an even more transformational technology.

The strategy for dealing with the risk of being leapfrogged is classic Finance 101 material — diversification. Thousands of books have been written about the trade-off between liquidity and the high returns that come from volatile emerging technologies. The solution, always, is diversification.

We know that some of our stocks will fail, but a diversified portfolio of true transformational companies is, historically, the surest source of true transformational wealth.

To diversify your technology portfolio, look for companies in different areas of the technology sector (wireless technology, biotechnology, computing technology, etc.) that are taking strides toward what could be the next big thing. You never know what company will be the next Microsoft or Google, but with a little research and a little risk a diverse technology portfolio could be your first step toward great wealth.

Sincerely,
Patrick Cox
Penny Sleuth

February 7, 2011

Investing in Tomorrow’s Technology Today was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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