Predicting the Future of Technology

Future

When I started out as an inexperienced investor, I thought that the S&P 500 was for old people, just like dividends.  I wanted to invest in the upcoming companies that were changing the world.  Little did I know, the tech boom was coming to an end, and those high flying stocks would soon become worthless.  In 1998, in regards to investing in technology companies, Warren Buffett said, “The answer is no, and it’s probably unfortunate. I don’t know what that world will look like in 10 years, and I don’t want to play in a game where the other guy has an advantage over me.”  

 

Warren Buffett’s right hand man Charlie Munger even said this, “Whatever you think you know about technology, I probably know less.”

 

I remember thinking at the time, Warren Buffett is a dope.  He needs to learn quickly because the world is becoming more technology-reliant by the day.  I was only half right.  While the world is becoming more technology-reliant by the day, Warren Buffett is correct when he says that it’s hard to know what the world will look like in 10 years.  

 

future of technologyDo you realize that the iPhone debuted 9 years ago, in June of 2007.  I remember when the Motorola RAZR came out and how “hot” that looked.  I thought nothing would top the slickness and design of the RAZR.  However three years later, the iPhone debuted.  Can you imagine not having a smartphone today?  Yet, 10 years ago, this technology didn’t even exist.  

 

What’s even crazier is when Warren Buffett said this quote in 1998, he was 100% correct.  There is no way people could have determined that they would have a computer in their hand that would also be able to make phone calls, play games, and check what all of your friends were up to on Facebook.  The speed and direction of technology moves so rapidly.

 

future of technologySpaceX is another company that I never saw coming.  Who would have thought that we could use reusable rockets to send satellites into space.  SpaceX launched the first private rocket into space in 2008 and in 2015, the first reusable rocket.  

 

The defense contractors like Lockheed must have been blindsided.  As entrenched as they are and with all their funding, how could they not have thought about a reusable rocket?  Maybe they were content with knowing exactly how to get by and get paid by the government, so they might have lacked interest in further innovation.  They must be shaking their heads now because SpaceX is about to eat their lunch.  

 

If technology can evolve so rapidly, how do you know that an industry that you know so well won’t also morph in the blink of an eye.  One thing that I don’t understand is how individuals think they can be a better long term stock picker than the benchmark against the S&P 500.  While I agree there are a small subset of investors that can foresee the future and can beat the market.  The average investor does not consistently beat the market.

 

If you don’t believe me, let’s look at some of the data.  Remember in the 1990’s when the dot.coms really began to flourish?  Would you have picked winners like Amazon, Apple, Google and Facebook at that point?  Probably not.  More than likely you would chosen duds like Pets.com, Garden.com and Webvan.  Hindsight is always 20/20.

 

So let’s explore this for a little bit.  If a company was a winner in one decade, it should continue to flourish moving forward, right?

 

Let me share with you the top performing stocks from the 1990’s.  As you can see in the 2000’s, 17 out of the 25 stocks failed to beat the S&P 500.  In the 2010’s, 16 out of the 25 stocks failed to beat the S&P 500.  There were only 3 stocks out of 25 that beat the S&P 500 in the 2000’s and 2010’s.  That means that 88% failed to beat the S&P 500 consistently over 20 years.

 

Company 1990’s Change 2000’s Change 2010’s change Beat S&P 500
Dell 89374% -73% Private No
EMC 80238% -69% 64% No
Tellabs 16317% -91% Private No
Best Buy 9959% 85% 20% No
Microsoft 9566% -48% 89.59% No
Charles Schwab 8261% -29% 105% Yes
Sun Microsystems 7070% -94% Purchased by Oracle No
Applied Materials 7017% -57% 100% Yes
Amgen 5788% -8% 212% Yes
Altera 5663% -9% Bought by Intel No
Linear Technology 5422% -18% 100% Yes
Oracle 4756% -18% 69% No
Micron Technology 3888% -77% 39% No
Intel 3711% -53% 78% No
Home Depot 3698% -58% 375% Yes
Electronic Arts 3584% -20% 377% Yes
Novellus Systems 3451% -40% Acquired by Lam Research No
Paychex 3404% 18% 92% No
BMC Software 3072% -52% Private No
Analog Devices 2753% -34% 65% No
Harley-Davidson 2504% -16% 109% Yes
KLA-Tencor 2443% -35% 92% No
Gap 2321% -53% 21% No
Teradyne 2300% -84% 99% Yes
Texas Instruments 2057% -47% 174% Yes
S&P 500 316% -25% 97%  

 

Here are the top stocks for the 2000’s.  As you can see below 18 out of the 25 stocks fail to beat the S&P 500 over the next decade.  It appears that the patterns above show that it’s difficult for top performing stocks to continue to beat the beat market.

 

Company 2000’s Change 2010’s change Beat S&P 500
Medifast Inc 16209% 15% No
Green Mountain Coffee Roasters 9210% 297% Yes
Hansen Natural Company 7022% 19% No
Bally Technology 5974% 100% acquired in 2014 Yes
Southwestern Energy 5775% -71% No
Clean Harbors 4668% 71% No
Amedisis 4608% 3% No
Deckers Outdoor Corp 3775% -25% No
Quality Systems 3435% -61% No
Almost Family 3413% -2% No
Dynamic Materials 3276% -39% No
XTO Energy 3237% Acquired in 2010 Yes
Joseph A. Banks 3196% Acquired in 2014 No
Sirona Dental Systems 2599% 256% Yes
Central European Media Services 2598% -90% No
Terra Industries 2396% Acquired in 2010 Yes
CKX Inc 2354% Acquired in 2011 No
Range Resources 2245% -20% No
FTI Consulting 2022% -6% No
Carmax 1997% 153% Yes
Quicksilver Resources 1958% -99% No
Team 1841% -11% No
Central European Distribution 1817% -99% No
Cal-Maine Foods 1813% 206% Yes
Isramco 1745% 13% No
S&P 500 -25% 97%  

 

Some may be thinking that surely you could pay a mutual fund manager to figure out where technology is going.  According to research conducted by financial advisor Aye Soe from 2012 to 2016, only 0.3% of mutual fund companies remained in the top quartile.  This means 99.7% of the top performers in 2012 remained a top performer 5 years later.  This is a remarkable stat showing just how difficult it is to pick winners and losers.

 

While it may be fun selecting potential winners in your stock portfolio, the odds of you picking the right stock is not in your favor.  I personally don’t recommend picking out stocks, but of course there are a small percentage of investors who can defy the odds.

Mustard Seed Money

Welcome to the website. A mustard seed is a very small seed but astonishingly grows very large over time. My hope is that through your financial journey that your small investment in time, money and faith will grow beyond anything that you could ever imagine.

7 Comments

  1. This is exactly why my 401k funds are in 90% s&p and 10% in the bond market. I do have a trading account to have a little fun and try to make a little extra cash than the benchmark but I’m protected over the long-term by investing 90% in the stock market and 10% in the bond market. Great post!

  2. I’ve done penny stocks and stuff not a lot had a couple make a few bucks but nothing to write home about. My best gains have come from undervalued small caps. It is always best to have a mix of solid stocks.
    Doug recently posted…Another Dividend raiseMy Profile

  3. You’re right, it’s incredibly difficult to predict who the eventual winner is going to be when technology changes – but it’s pretty obvious who the loser(s) will be. In hindsight the valuations of those companies who made little revenue, let alone profit, was crazy. It’s easy to cover all the possible bases by being in the index, that way you’ve always got the 500 biggest companies no matter what the economy & business environment.

    Tristan
    Dividends Down Under recently posted…Shareholding Review: Rural Farm Funds (ASX:RFF) 2016 ResultsMy Profile

  4. Great points here MSM, agree that it’s tough to pick where the trends are heading and what will go on out there..

    Thanks for sharing and enjoying your back catalog here :)!

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge