A Series on Evolutionary Investing by Thomas Ricketts, CFA
Opportunity is Found on the Innovation Frontier
We live in the Age of Innovation. This era is built increasingly on intellectual capital as the value of ideas and concepts displaces the value of land (as seen in the age of agriculture) or even capital (in the industrial age). Others call our current era the Digital Age, but the result is the same, a growing array of innovations across all industries that increases the pace of change and the evolution of technologies, products and services, and industries.
On Evolutionary Investing
The two primary principles or approaches to investing revolve around the disciplines of Value and Growth investing. The debate over which discipline is superior has gone on for decades, and the survival of both approaches proves the point that they both have merit. This debate is stale, as great managers on either side utilize aspects of the other. Successful value managers find companies that see a rebound in earnings power and thereby benefit from a type of growth, while growth managers experience success when they find sustainable growers and don’t overpay for this growth. Said another way, value investors can always rely on the emotions of Mr. Market creating value opportunities, while growth managers will always be able to take advantage of the emergence and growth of new industries. Both approaches are needed for well-functioning markets.
Navigating the Innovation Hype-Readiness Continuum
The Evolutionary Investing framework and the Technology and Industry Evolution Model I have outlined in previous white papers delineate the long and winding path of an invention and generational progress of technologies. This model may give the impression that every new technology will progress neatly through each phase of the model, that there will be smooth, if not linear, progression from one phase to the next, or that each technology or innovation will be successful. Intellectual integrity leads me to make clear that these would be incorrect takeaways and that, while the model has great utility, it also, like any mental model, has limitations. Thus, the application of the model must be applied with great care and a focused, dedicated research effort.
