Sometimes when you are looking to put some high octane into your investment portfolio, we often look to emerging industries, sectors or ideas. Over the decades segments of the market change from time to time, but today, you could describe some of these fields as being in the area of biotech and technology- or even frontier countries.
Generally investors are looking for ideas today which have the potential for disruption to create lasting change and transform a segment of the market tomorrow.
However when we think about these new developments, we often think of them in terms of the “Kodak moment”. In that we believe that the disruption will render the existing competitors worthless and sidelined. In Kodak’s actual moment, it was the disruption of the camera moving from film to digital which pushed this company into bankruptcy. However is this always the case?
Last Sunday I took the family to the Eureka sky deck in Melbourne to be a little bit of a tourist in our own city. The views were spectacular as we fortunately managed to pick a day of perfect blue sky. Whilst I was walking around the sky deck, I noticed a small photo booth where you could jump in and take a couple of happy snaps in black and white pictures that were printed instantly.
Over the past year I have been lucky enough to attend a few weddings and other big gatherings. Here I often notice too that there are small photo booths provided for people to capture the moment with an instant picture to provide one with a lovely photo memento.
Now in this example, digital pictures were supposed to render this idea worthless and dead, and whilst in some degree this is often true, is this really the full picture? (Pardon the pun!)
Often today when we think about development and new areas of excitement within a market, we think of the competition being thrown onto the stock pile of junk and left to decay. However, in a lot of cases, we find that the evolution may have not been completely black and white.
Now the traditional service provider or product normally goes through massive amounts of financial pain from the new entrant…. but should it be overlooked as it adapts and possibly changes?
Does this provide an opportunity too for the investors whereby one needs to keep 2 path lines of thinking open? i.e. One path for the innovative idea and company which is charging a head, and another path for the traditional business which is often discarded and rendered worthless and dead. If this is true, does this provide one with the opportunity to pick up a deeply discounted valuable company which might be sold off for cents in the dollar?
True disruptive ideas and businesses will definitely have a significant impact on a particular market and field, but once the dust settles, it might be worth looking around and seeing who is left sitting at bargain basement valuations.
Sometimes the older traditional industries are the ones people still love still have a sense of nostalgia with which allows them to continue on being profitable.
I know I would prefer to wonder through a quaint village in a foreign country meandering through the shops and cafes to soak up the activity than step into a large shopping mall filled with global brands that I can find anywhere around the world – or even online.
When it comes to the digital pictures, I hardly get a chance to look at the mass of pictures which I have taken over the years. However surprisingly, I cherish the small section of snap shots that have been taken from events sitting on my fridge, and I often look at them with fondness remembering the moment.
Sometimes the line of direction changes for these old businesses, and in some cases, they are just a slimmed down version of their former self but yet still profitable and solvent.
So when you are looking at the next hot segment for investment, spare a thought for the business which might have changed to cope with their industry and you might find yourself a bargain at basement prices.
Like all great financial planning ideas, it is important to seek professional guidance and as always we would recommend AJ Financial Planning.