Recently, we came across an article that we think is very valuable, and gives a lot more insights and subsequently more conviction towards our investments.
The article Google Director Of Engineering: This is how fast the world will change in ten years, spoke about the rate of change that the world is seeing now, and here are some noteworthy pointers that we thought we wanted to share here.
- While human biology evolves so slowly we don’t notice, ideas (cultures, strategies, technologies, etc.) evolve so quickly, we can’t keep up. Idea evolution is like biological evolution on steroids.
- In other words, in a moment when many are already feeling overwhelmed by change, things are about to take off even faster. 20 years from now, the rate of change will be 4x what it is now. Things will keep accelerating from there, and in 40 years, it will be 16x.
- 20 years from now, the rate of change will be 4x what is now. Said differently, for someone who is about 40 today, when they’re 60 in 2040, the rate of paradigm change will be 4x what it is now. They will experience a year of change (by today’s standards) in three months. For someone who is 10 today, when they’re 60, they’ll experience a year of change in 11 days.
- “We won’t experience one hundred years of technological advance in the twenty-first century; we will witness on the order of twenty thousand years of progress (again, when measured by today’s rate of progress), or about one thousand times greater than what was achieved in the twentieth century.”
- “In order to keep up with the world of 2050, you will need not merely to invent new ideas and products but above all to reinvent yourself again and again.”
- “Read 500 pages every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.” — Warren Buffett
How This Affects Our Investment Thesis
From the article, basically it is saying that companies should always be innovating or die – simply because the rate of change and innovation is getting faster and faster. If you are slower than your competitor, there is an increasing risk where you will be replaced.
Companies compete for top talent. Employees compete for open positions.
Employees compete to move up the corporate ladder.
Companies compete for investors. Investors compete for the best startups.
Companies compete against each other via their products and services.
Scientists compete against each other for publication, citation, awards, and funding.
Everyone competes for attention.
Just like evolution, when we evolve new technologies, things don’t slow down and become a utopia. Rather things get faster and more competitive.
This is actually quite scary to us, but at the same time illuminating.
After reading the article, our conviction towards investing only in high growth, high risk companies grew even more. Slow moving or dividend paying companies doesnt really cut it anymore because they are not growing as fast, and in a few years time, they will struggle to keep up with the rate of change. They simply cant keep up anymore and will risk being ousted by new competitors.
When we look at companies, we should really pay more attention to companies which are growing at a high clip and are investing heavily in R&D to futureproof themselves. Dividend paying companies dont really spend as much as growth companies into R&D and may therefore lose out in this regard.
In terms of specific winning long term counters that comes to our mind – SE, Palantir, and Tesla.
SE is growing at over 100% every year as compared to their e commerce peers, and they are involved in 3 high growth verticals – e commerce, gaming and fintech.
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Palantir on the other hand, has technology that is way ahead of its curve, and their customer retention is very high – customers cant move to any other competitors after being exposed to what Palantir can do for them, simply because their technology is unparalleled at this point.
For Tesla, on top of their battery technology and autonomous driving data, Elon Musk is an engineer himself, and as an engineer, is always trying to find the best way to improve their product.
After reading the article, we really think that the best way moving forward it to invest in high growth innovative companies. Because that is the only way our portfolio can keep up with the rate of change the world is experiencing now. Investing in growth companies is the only way we can protect our portfolio.
And as Cathie Wood says, stay at the right side of change.