Ty Cobb was perhaps the best baseball player ever. He was also an astute investor. Although he was one of the highest paid players of the early days of the 20th century his investment in Coca Cola made more money than he ever would have made playing baseball. Our point of bringing this up is that it can be useful to learn how to recognize the next big investment opportunity. Doing so does not just have to do with recognizing an evolving investment niche but also specific opportunities within that niche!
Ty Cobb, Baseball Great and an Excellent Investor
Early 20th Century Investment Opportunities
During the early twentieth century automobiles became the primary means of transportation. What started as an oddity among horse drawn carriages and wagons grew to where virtually every family had a car and buses and trucks completely replaced horse drawn vehicles. During the same period the USA connected cities and the whole country by telephone and a small soft drink company took a soda fountain beverage and bottled it making it more widely available, and profitable! Folks who bought Coca Cola, American Telephone and Telegraph, Eastman Kodak or United Motors which became General Motors turned small investments into fortunes.
Mid to Late 20th Century Investment Opportunities
The invention of the computer created an investment niche in the years after World War Two and going forward. Leading companies included IBM which dominated this niche for decades until the company missed out on the introduction of the personal computer in the early 1980s. Companies that took advantage of personal computing were Apple and Microsoft, which grew to be modern day tech giants with market caps in the trillion dollar range.
Meanwhile, a revolution in biotechnology focusing on the molecular basis of diseases, and recombinant DNA technology drove the development of new drugs that previously were only the stuff of dreams. Companies like Amgen and AstraZeneca increased in value hundreds or even a thousand fold over the last forty years and the pharmaceutical sector holds continued promise as AI is applied to drug development.
Early 21st Century Investment Opportunities
The rise of the internet has driven many investment opportunities in the last few decades. The rise of several tech titans like Microsoft, Apple, Amazon, Netflix, and Alphabet was preceded by the dot com boom and bust during which fear of missing out drove investors to buy any new stock with dot com in the name. Now the high tech world is offering us artificial intelligence as well as quantum computing. Where in this mix can investors find the next best investment opportunity?
Sector Investing Versus Picking Individual Stocks
In general it is easier to see the promise of profits in given sector than to pick the winners within the sector. IBM was an obvious winner for years until it missed the personal computing boat and then it was not. Legendary investor Warren Buffett said that he tended to avoid tech stocks because technology changes so rapidly that a sector leader may lose it lead and profitability within five years as new tech translates to new products and services. Microsoft rose to tech prominence and created fortunes by first providing the software made it possible to code with an IBM PC and then developing the Windows operating system that allowed normal, non-programmers, to use personal computers. Microsoft went on to develop and sell many more programs and services targeting business users without professional computer programming skills. Similarly, when Steve Jobs came back to Apple he led development of smart phones thus greatly widening the market for Apple’s products and services. The take home lesson from Microsoft and Apple is that the most profitable investments in a given niche will likely be those companies that provide services to a broad market not dependent on specific technology but rather aimed at helping people solve problems and deal with the real world as they live it.
What Are the Best Mid-21st Century AI or Quantum Computing Investments?
Nvidia is currently the most profitable and visible leader in the AI niche with chips specifically designed for this ultra-high tech world. In addition they provide software and other services as well as gaming software, which was their main product line prior to the emergence of AI. Thus the company is well rounded in the AI niche with backup products and services in gaming. They also provide AI tools and services that can be used by “normal” consumers who do not have professional AI training. This is more like the Microsoft approach to personal computing and bodes well for long term profitability. In general we believe that companies that provide “picks and shovels” in the AI gold rush will do the best and provide the best long term profits for investors. In regard to quantum computing, Nvidia has made three recent acquisitions in this space giving them the ability to integrate quantum into their AI line of products and services. As we noted in our articles about the best quantum computing investments you can try for a home run with a company that deals solely in quantum computing or a well-rounded company with exposure to this niche. Nvidia appears to fit well into the later category.