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Bring You Wealth in 2011
By Ray Blanco
December 13, 2010
Dear Penny Sleuther,
As you know, we are about a month out from the Federal Reserve’s decision to pump additional funds into a slow U.S. economy. Of course, this decision has been controversial. Many people think that it might ignite an inflation bomb. Couple this with the more recent bailout of Irish banks (and speculation about more euro dominoes about to fall) and lots of folks are pretty scared.
For the long-term technology investor, however, I don’t think it really matters.
From an orbital perspective, these panics come and go. They always have. The technological arc of human history, however, can be seen to move in only one direction, and that is upward.
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Granted, over the short term, it might have some negative effect, but even that remains to be seen. Breakthrough technologies are an excellent way to weather an inflationary storm. We could even call breakthrough technology the ultimate hedge against inflation.
Microsoft, for example, was founded in 1975, when inflation averaged over 9%. Granted, it wasn’t publicly traded back then, but there were private investors. Imagine what a dollar invested in Microsoft in 1975 would be worth today. Just since its IPO in 1986, the company has turned a (split-adjusted) share price of 10.1 cents into over $26.
That is a gain of more than 26,000%. Even with the dollar losing about half of its purchasing power since 1986, that is still an inflation-adjusted gain of 13,000%. I can live with that. The point is that early investing in companies that will transform the market will beat any devaluation caused by inflation.
What kinds of technologies transform the market? Essentially, what my colleague, Patrick Cox, and I look for in Technology Profits Confidential are transformational innovators that reduce costs by making things cheaper and better. This investment theme extends to a wide variety of fields, from agriculture, to alternative energy, to computers and semiconductor fabrication.
The famous quote (erroneously attributed to Emerson) that applies here is: “Build a better mousetrap and the world will beat a path to your door.” This remains true during good or hard times. All that “door traffic” is lucrative, since people reward things of value. Investors that acquire ownership positions in the builders of better mousetraps stand to reap hefty profits, whether in good times or bad.
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Here’s a look at two emerging “mousetrap” discoveries that could lead to wealth in 2011:
Two Discoveries to Keep an Eye On
1. IBM Lightting the Path to Next Generation Computers
IBM ‘s global research labs recently revealed a new semiconductor technology that combines current electronic computing technology with optical technology. Optical circuitry, also called photonics, uses pulses of light, instead of electrons, to work. Photonic circuit elements can accomplish the same tasks as electronic ones while being smaller and faster. Power consumption could also be reduced to a fraction of what an equivalent electronic computer requires.
Called CMOS Integrated Silicon Nanophotonics, IBM’s photonics tech would increase the processing speeds of the fastest computers from petascale to exascale. Petascale computers, which are currently the world’s fastest supercomputers, can execute instructions at the rate of multiple petaflops (a quadrillion floating point operations per second). For example, China’s current record holder, Tianhe-1, can do slightly more than 2.5 petaflops. Exascale computers, on the other hand, would be 1,000 times faster than that.
We’ve already seen photonics revolutionize telecommunications over the last several decades.
Just as recently as last December, exascale supercomputers were not expected for another eight years. IBM, however, says that the new technology will enable it up the ante and ship out the first exascale chips in five years.
The recent eight-year estimate may prove to be just another case of underestimating the acceleration of technological change.
2. NASA Announces Discovery of “Alien Life”
Rumors were flying earlier this month about what NASA would be announcing on December 2, 2010 at an astrobiology news conference. Some speculated the discovery of life on Mars. Others thought it had to have something to do with the discovery of an oxygen atmosphere surrounding Saturn’s moon Rhea.
As it turns out that the discovery was Earth-bound. A unique species of bacteria was found that had adapted to the environment at the bottom of a naturally toxic arsenic-laden lake in California. (Which is an appropriate adaptation, considering the toxic state of California’s public budget.)
Here is where it gets really interesting: Every form of life we have ever encountered requires the element phosphorus. You could say that we are a phosphorus-based form of life.
To date, we have never found a form of life that doesn’t use this basic chemistry. However, the newly discovered bacteria, or “strain GFAJ-1 of the Halomonadaceae family of Gammaproteobacteria,” doesn’t use phosphorus. It uses arsenic. This, of course, raises questions about what kind of life we might expect to find out in space. What would an alien arsenic-based life-form look like? If it was intelligent and could communicate, what would it tell us?
It will be interesting to see what kind of amazing breakthroughs will come out of this newly discovered bacteria. Changing the concept of “life as we know it” will certainly spur researchers to start looking into how to use this new information. With this new concept of life, it will be exciting to see what kind of medical as well as other breakthroughs that could come from this.
As investors we should be keeping a close eye on the innovations that will start to come out of this exciting new discovery.
The current market climate is breeding these, as well as many more wealth growing opportunities in the future.
Sincerely,
Ray Blanco
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