Research

ADAPTING TO CHANGE

My grandmother was born in 1898 when Oklahoma was still an Indian territory.  The amount of innovative inventions and new technology developed in her lifetime were amazing.  Statehood, automobile, telephone, phonograph, electric lights, indoor plumbing, airplanes, space travel, and more.  I remember how amazed she was to discover the microwave oven!   She was an immediate adopter and marveled at how quickly she could cook, compared to the old technology oven.  I have always found it helpful to be open-minded and an early adopter of innovation.  There is a competitive advantage to this in my opinion.  Attending the Singularity University innovation conferences builds excitement and intrigue about the mind-blowing technological changes underway.

However, for many people, change is uncomfortable.  They have inertia like resistance to the innovations.  After all, it is called disruptive technology for a reason.  The hardest part about change, according to psychologists, is not embracing the new innovation; it is in giving up the old. Still others see change as opportunity.

This is not a new phenomenon and has probably been a human character trait since the invention of the wheel.  With the rate of change accelerating exponentially today, the uncomfortable disruption, as well as the embedded opportunity, will likely follow with the same speed.

Venture capitalist Morgan Housel with the Collaborative Fund has written about change we have already experienced in the last century, and our collective response to that change.  For example, do you know what’s happening in this picture?  Literally one of the most important events in human history.  The most amazing part of the story: Hardly anyone paid attention at the time.

Wilbur and Orville Wright conquered flight on December 17th, 1903.  In 1900 it took four days to travel from New York to Los Angeles by train. By the 1930s it could be done in 17 hours by air. By 1950, six hours. But days, months, even years after the Wright’s first flight, hardly anyone noticed.

Through research done at the Library of Congress, the front page of The New York Times the day after the first flight. Not a word about the Wrights:  Two days after. Again, nothing:  Three days later, when the Wrights were on their fourth flight, one of which lasted nearly a minute. Nothing:  This goes on. Four days. Five days, six days, six weeks, six months … no mention of the men who conquered the sky for the first time in human history. It was not until May, 1908 – nearly four and a half years after the Wright’s first flight – that experienced reporters were sent to observe what they were doing and the world at last woke up to the fact that human flight had been successfully accomplished.

Things that are instantly adored are usually just slight variations over existing products. We love them because they’re familiar. The most innovative products – the ones that truly change the world – are almost never understood at first, even by really smart people.  It leads to the expression, if you are 5 years ahead of your time you are considered a genius; if you are 10 years ahead of your time you are considered a nut.

It happened with the telephone. Alexander Graham Bell tried to sell his invention to Western Union, which quickly replied: This `telephone’ has too many shortcomings to be seriously considered as a practical form of communication. The device is inherently of no value to us. What use could this company make of an electrical toy?

It happened with the car. Twenty years before Henry Ford convinced the world he was onto something, Congress published a memo, warning: Horseless carriages propelled by gasoline might attain speeds of 14 or even 20 miles per hour. The menace to our people of vehicles of this type hurtling through our streets and along our roads and poisoning the atmosphere would call for prompt legislative action. The cost of producing gasoline is far beyond the financial capacity of private industry… In addition, the development of this new power may displace the use of horses, which would wreck our agriculture.

It happened with the index fund – one of the most important financial innovation of the last half-century. John Bogle launched the first index fund in 1975. No one paid much attention to for next two decades. It started to gain popularity, an inch at a time, in the 1990s. Then, three decades after inception, the idea spread like wildfire.

Internet. It’s happening today in many areas, as human behavior has not changed.  Paul Krugman, the Nobel Prize Winner and Op-Ed Columnist for the New York Times wrote in 1998, “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’ becomes apparent: most people have nothing to say to each other! By 2005, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”

Photovoltaics were discovered in 1876. They were commercially available by the 1950s, and Jimmy Carter put solar panels on the White House in the 1970s. But they didn’t take off – really take off – until the late 2000s.

Artificial Intelligence is taking the innovations of the technological revolution into atmospheric heights at warp speed.  The rate of change is actually accelerating.  It may be that the generation today experiences even more innovation than my grandmother experienced 100 years ago.  This will be uncomfortable and unnerving for some, and bold new opportunities for others.

In conclusion, big innovation breakthroughs typically follow a seven-step path:

  • First, no one’s heard of you.
  • Then they’ve heard of you but think you’re nuts.
  • Then they understand your product, but think it has no opportunity.
  • Then they view your product as a toy.
  • Then they see it as an amazing toy.
  • Then they start using it.
  • Then they couldn’t imagine life without it.

This process rarely takes less than several years and can take decades.

From the investing standpoint, some final points arise from this.  Stanford professor Paul Saffo put it this way:  It takes 30 years for a new idea to seep into the culture. Technology does not drive change. It is our collective response to the options and opportunities presented by technology that drives change. 

Economist John Keynes said, “Successful investing is anticipating the anticipations of others.”  “The difficulty lies not so much in developing new ideas as in escaping from old ones.”

When innovation is measured generationally, investment results shouldn’t be measured quarterly. History is the true story of how long, messy, and chaotic change can be. The stock market is the hilarious story of millions of people expecting current companies to perform quickly, orderly, and cleanly as expected. The gap between reality and expectations explains untold frustration and poor investment decision timing.

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