Transforming Patience Into Gains

“If you can keep your head when all about you are losing theirs…yours is the Earth and everything that’s in it.” –Rudyard Kipling, “If”

There’s plenty of bad news out there lately. Nations such as Greece are in imminent danger of defaulting on public debts, and thousands of people are protesting in the streets in response to austerity measures. Here in the US, unemployment is rising, and a number of indicators are suggesting a return to economic contraction. On the stock market, weeks of declines in major indexes have wiped out all of this year’s gains.

In many ways, our times are a lot like the years of the Great Depression. It is easy for us to get discouraged “and lose our heads” in this economic climate – but we shouldn’t. We are living in the most technologically productive period of all history.

The negative parallels between today and the Great Depression are widely publicized, but the positive parallels between the two eras are unknown to most people. Most people do not realize how technologically productive the 1930s were.

In a paper on macroeconomic history for The American Economic Review, Alexander J. Field of Santa Clara University found that the Great Depression years were the most “technologically progressive decade” of the 20th century:

The years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in US economic history. The hypothesis entails two primary claims: that during this period businesses and government contractors implemented or adopted on a more widespread basis a wide range of new technologies and practices, resulting in the highest rate of measured peacetime peak-to-peak multifactor productivity growth in the century, and, secondly, that the Depression years produced advances that replenished and expanded the larder of unexploited or only partially exploited techniques, thus providing the basis for much of the labor and multifactor productivity improvement of the 1950s and 1960s.

Discoveries and innovations are being made right now that will create vast fortunes in the years to come. If we keep our eyes on that prize, and invest accordingly, we will enjoy world-beating gains. Famous investor Sir John Templeton did exactly that.

In the dark days of 1939, when World War II was breaking out and it seemed that the Depression would never end, Templeton invested $10,000 in a basket of stocks. He ignored the market fluctuations. He kept his head when everyone else was losing theirs and picked up fundamentally great companies on the cheap. By the end of the war, that investment had yielded hundreds of percent worth of gains. He used those profits to build a vast fortune over the following decades.

New technologies are coming in the future that we can scarcely imagine today. In biology, growing knowledge is opening up exciting new vistas for the treatment of the diseases that cause so much death and suffering. The basis for this knowledge is often developed in other fields, like computer science. This isn’t surprising, since technologies that appear unrelated at first blush often move each other forward.

For example, scientific studies in the biological sciences – from how the human brain works to the properties of DNA molecules – are furnishing the computational field with new ideas. There is a tremendous convergence taking place between the different fields of science. As a result, the rate of discovery is accelerating so quickly that it is difficult to keep track of all the cutting-edge research.

When investing in new technology stocks, it is easy to be distracted by short-term movements in share prices. Easily frightened investors often end up losing out to more-rational ones with greater patience. It is important, therefore, to be patient and stay focused on the long-term trends.

This is true of just about any kind of investment. We can get bogged down by the minutiae and lose sight of the long-term potentials. This is, of course, a mistake. Even the share prices of the most promising innovators – with truly world-changing technologies – can get caught up in short-term tailspins. However, if we believe in the basic thesis of technology investing and the potential of these companies, these episodes of stock market weakness provide new buying opportunities, rather than reasons to reach for the antacids.

The thesis is simple: Wealth is created by real economic growth, not smoke and mirrors. Real growth, in turn, has historically been created by new technology.

Compare the average per capita economic output and standard of living before the Industrial Revolution with what came after the invention of the steam engine. The gains were enormous.

As another example, we could compare economies that still rely on muscle power for agricultural production with those that have implemented the most recent agricultural technologies. There is a reason for the former being called “subsistence agriculture.” People are just barely surviving.

A cursory look at the history of science and technology reveals one glaring fact: The rate of change is constantly accelerating. More has been accomplished in the last few decades than in the previous few thousand years. Investors often say, “The trend is your friend.” Technological innovation, therefore, is the mother of all friendly trends.

Investing in the greatest new technologies now and holding them until they reach commercial maturity is one of the best ways to create long-term wealth. If we keep that in mind, we will not be distracted by short-term “noise.” In a diversified technology portfolio, even the losses on the losers will be completely swamped by the long-term gains of the winners.

Moreover, we are long-term investors at Technology Profits Confidential. We don’t do short-term timing plays. We use our expertise to pick the best long-term technology investments. Our charter is to release one recommendation a month, every month. We do this whether the market is going to go up or down. Sometimes our recommendations perform poorly at the outset, sometimes they don’t.

Over time, real value is recognized by the marketplace…and rewarded accordingly!


Ray Blanco,
for The Daily Reckoning

The Daily Reckoning