Just 20 years ago, our world was a very different place.
Laptops and the modern internet were both a few years old, but neither had reached mainstream acceptance.
There were no digital cameras… no digital music players… no smartphones… no tablets… We didn’t have Facebook or texting. And if we got lost, there was no OnStar or Siri or Google Maps to save us.
Over the next 10 years, barriers will be broken… whole new industries will be created… fortunes will be made.
Advances in technology will bring such fundamental changes to our lives, they’ll dwarf all the progress we’ve seen since the great tech revolution that began in the late 1990s.
Everything will change. The ways in which we work, shop, sleep, eat, travel, bank, communicate, entertain ourselves, conduct warfare, manufacture, design, distribute, create, transact, and maintain our own health will all be different.
Although we’ve seen radical changes in technology during the last two decades – streaming video, cellphones, the internet, miniaturization, etc. – these improvements are only incremental.
In fact, they are just the foundation for technology-based changes that will be exponential.
We’re on the cusp of a new revolution. And those who act now will be the first to realize the extraordinary wealth these changes will bring.
The problem with identifying an exponential change is that its early stages look the same as an ordinary linear change.
As shown in the graphic in Figure 1, exponential changes grow quite slowly in their early stages. But when they reach a certain tipping point – the sharp “elbow” you see in the graph – they take off like a rocket.
As an investor, you want to be in position just before the elbow.
Think about a company like Apple. It enjoyed explosive growth – and explosive returns on its share price – during the early years of the computer revolution. After that, the company – and its stock – held steady for quite a while.
But then, with the introduction of the iPhone in 2007, Apple’s stock price began its meteoric rise. Take a look at the chart below to see the exponential growth.
Today, I believe we’re entering a new, faster stage of innovation across the tech landscape. Progress is accelerating.
How do I know this?
I have been a high-technology executive for the last 25 years. I’ve built early-stage startups. I’ve run organizations generating hundreds of millions of dollars in annual revenues. And I have a wide range of technology-industry experience. From semiconductors and mobility, to broadcasting and video technology, to technology infrastructure, to IT networking, to IT security, to automotive and even consumer electronics… I’ve done it all.
And as an active angel investor in early-stage technology companies, I have access to information the public never sees.
Over the last few decades, it took, on average, about 20 years for the typical Fortune 500 company to reach a market capitalization of $1 billion.
In 1998, Google was able to reach $1 billion in market cap in only eight years, which was considered fast at the time. By 2004, Facebook had done it in five years. By 2009, Uber had done it in less than three years. In 2012, virtual-reality firm Oculus did it in just over a year. And as recently as 2014, a workplace productivity company called Slack pulled it off in eight months.
As you can see in the chart above, this trend is speeding up. And investors are reaping the benefits.
Facebook shareholders who bought at the IPO are now enjoying a 215% return on their investment. And they’re the laggards. Tesla shareholders are up 864%. Google shareholders… 1331%.
In business, it is critical to track a well-defined pipeline of potential opportunities. This is essential for resourcing, product development, forecasting, and strategy decisions.
Investing is no different. In order to be prepared for profitable opportunities, it is critical to understand where those sharp “elbows” will be.
This is something I’ve always focused on as an investor – and it’s given me great success.
I break it down into two winning strategies.
One of the best ways to be a successful investor is to identify trends before they become mainstream. This is especially true in the rapidly changing tech sector.
Through regular contact with my peers and associates across the tech landscape, I am able to get firsthand answers to the most important questions…
What kinds of research and development are tech companies spending money on?
What are the current pain points for end customers?
What technologies are gaining momentum?
This helps me target emerging trends before the typical investor does.
The other area that I follow closely is the venture capital (VC) community. This helps me understand what sectors of technology are getting support – in the form of VC money – to create the next generation of disruptive technology. In this context, “disruptive” is a good thing. It refers to the type of game-changing innovations that forever alter an industry.
And these are the kinds of companies I identify through early trend spotting.
A few years ago, I really started to pay attention to the emergence of what is now called “fintech.” This is short for “financial technology,” and some of the developments here are truly disruptive.
One area of fintech that I am really excited about is crowd-funding. Perhaps you have heard of Kickstarter. Using Kickstarter and other companies like it, early-stage companies can now “kick-start” their business by raising money before ever producing an actual product. In essence, customers prepay for a product, giving the company money to finance bringing the product to market.
Kickstarter began in 2009, and the concept took off. By the end of 2016, the broad-based crowd-funding industry will be larger than the traditional venture capital industry.
I have personally invested in several private companies in this space whose valuations have already more than doubled.
As the new fintech ecosystem begins to gain momentum, there will be many other ways to invest in this trend.
Understanding sector cycles is another excellent strategy for technology investing. It helps us know when there is a strong, broad trend that is lifting a certain sector. During those times, the best equities will tend to outperform. And by knowing which companies are the strongest in that sector, we can generate outsized returns.
On the other hand, when a certain sector is trending down, we’ll stand aside and look for opportunities later when the trend reaches another inflection point.
A simple example is the semiconductor industry. It goes through classic boom-and-bust cycles every few years. Why does this happen?
As economic activity picks up, semiconductor factories across the industry become fully utilized, requiring a lot of investment to build out new capacity. This is a very profitable period as demand exceeds supply, driving up prices and profits. This is a great time to invest in semiconductor companies.
But then once capacity catches up with – and eventually surpasses – demand, factories are no longer fully utilized. Those now-larger fixed costs eat away at profitability, requiring deep spending cuts.
Gradually, the industry scales back until supply once again falls short of demand, and the cycle starts all over again.
In Exponential Tech Investor – my small capitalization high tech investment advisory service – we invest in the companies that stand to benefit the most from the revolutionary changes ahead…
We’ll be investing before the “elbow” to reap the biggest rewards.
And we’ll be following a clear road map that’ll help us get in – and out – at the right time.
Editor, Exponential Tech Investor
Editor’s Note: According to Jeff, we’re entering a brand-new era of financial technology… and Jeff believes investing in the right companies today will deliver unimaginable gains over the next few years. To learn more about Jeff’s strategy for picking potential 10-baggers, click here.