At HFS, we believe anticipating the future is one of the most important skills for investors. You could be a “valuation expert” with the most sophisticated financial models, but it won’t help without solid inputs and assumptions. As the saying goes, “garbage in, garbage out”. While no one can predict the future with precision, successful investors need to be directionally correct.
We’ve made the argument before that we’re in a period of massive technological change that’s impacting every consumer and business. HFS spends a lot of time thinking about how fast and far these shifts will occur. Ultimately, our goal is to make sure that our client’s portfolios are on the right side of these transformations. We understand that some people remain skeptical. The thought of hopping in a self-driving car or not having to own one is hard for some to imagine (what would you do with your garage space?). However, we found it instructive to learn that these are not new issues. When looking at past periods of change, many of the same hurdles existed.
Source: Kilby, E.R. (2007). The demographics of the U.S. equine population.
The state of the animals 2007 (pp. 175-205).
Washington, DC: Humane Society Press.
U.S. Department of Transportation Federal Highway Administration
The longer something has remained the same, the harder it is to imagine it changing.
We found an article in a 1930 edition of the Saturday Evening Post written by Alexander Winton. In 1896, Winton founded the Winton Motor Carriage Company, which sold the first American-made gasoline car in 1897 for $1,000 (about $33,000 today). He spoke about the public ridicule he faced with pursuing his invention. “The great obstacle to the development of the automobile was the lack of public interest. To advocate replacing the horse, which had served man through centuries, marked one as an imbecile.” Additionally, a skeptical reporter wrote, “The notion that (gas-powered) vehicles will be able to compete with railroad trains for long-distance traffic is visionary to the point of lunacy”.
We can think of several companies and ideas (autonomous electric cars and the “metaverse”) that face similar skepticism today.
Technological progress solves many more problems than it creates.
Alexander Winton owned a bicycle plant in Cleveland and started thinking about ways that a rider wouldn’t have to push while trying to get somewhere. By inventing the automobile, he inadvertently solved a mounting sanitation and public health crisis in urban areas. Horses produce a lot of waste. In fact, it is estimated that New York City’s horse population in 1880 was producing 3 to 4 million pounds of manure that “lined city streets like banks of snow”. Vacant lots were pilled high with manure, sometimes reaching 40 to 60 feet high. This attracted flies and spread disease. Horses also required large acres of farmland nearby to grow oats and hay. In fact, one farmer estimated that each horse consumed the product of five acres of land. With around 150,000 horses in New York city in 1880, much of the city’s nearby land was being used for fuel – for horse transportation.
Initially, new innovations can be inconvenient and attract bad actors.
Winton drove a horseless carriage from Cleveland to New York in 1897. He said that no greater test could have been given to his machine as “the roads were simply outrageous” with ruts and mud. There were no gas stations at that time. Fuel could be purchased at a drug store but seldom could be bought in large quantities.
More than 500 automobile companies came and went in the first few years. Winton wrote “it was difficult for the public to distinguish between the genuine and the ephemeral.” Without any mechanics or auto parts suppliers, customers that purchased a car from a defunct manufacturer were helpless.
To summarize, we believe that there are many parallels to be drawn from Winton’s experience to today. The turn of the last century was a golden period of innovation. Not only was the automobile created, but also the assembly line, the radio, the lightbulb, air conditioning, the airplane, tractors, among others. We believe that we’re in a similar period of change, whether that’s artificial intelligence, the creation of the digital economy, cryptocurrency, or autonomous cars. Adoption will not occur at a steady pace. Just like the automobile, there will be periods of rapid growth (1900 to 1930), pauses that will bring out the skeptics (1930 to 1945), and then exponential growth to becoming mainstream (1945 and beyond).
HFS believes the future is bright, and we can’t wait!
The opinions expressed are those of Harrison Financial Services as of November 21, 2024 and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested.