For some reason, we love the concept of technology, but hate the tech that surrounds us.
We curse our email when it freezes for the slightest second. We damn the cellphone carrier that sends a signal to space and halfway around the earth when we're talking with someone thousands of miles away, but the drops the call.
We dismiss certain innovations because we think they're just another passive fad.
This bias against technology sometimes leads us to miss some of the greatest investment opportunities of a lifetime.
Yesterday, we explored the first of six questions that an investor needs to answer in order to identify a profit-winning investment opportunity. Today we will jump right in with the second and more important question for this radically innovative world.
The first question centered on whether technology can help expedite the flow of goods and services around the world, increasing scale and physical trade.
But today we need to focus on the increased speed and scale of a very different flow.
Can You Hear Me Now?
We are interested in whether this innovation also increases the speed and flow of information, data, and/or financial transactions.
Now, the velocity of information, data, and money is vastly different from the flow of physical goods.
Given that currency is digital these days, we want to understand how transactions of money and information are being exchanged in a way that increases interactions among human beings, offering greater access at greater speeds.
As networks have dramatically increased download times and established the "speed of light" as the norm, the flow of information continues to expand, greatly increasing our economy and improving buying decisions.
This is a very important distinction. Physical trade is currently bound by technologies that have not drastically improved in nearly 60 years.
We are still using aviation technologies from the 1960s, traveling at the same jet speed around the world. And shipping, freight, and rail technologies haven't drastically improved much either aside from reductions in fuel requirements. We are effectively bound by the limits of physics when it comes to our physical trade across the world.
But the digital flow of technologies has drastically increased over the past 20 years. With the birth of the internet, the global economy has evolved from wire transfers during Western Union business hours to instant transfers of money, information, and transactions 24 hours a day in a manner of seconds.
Information cannot flow any faster than it does right now at the speed of light (with the exception of the people who are moving mountains to blast Nano-messages between the stock exchanges in Chicago and New York).
So, we want to locate a technology that (we want to emphasize technologies that can speed up transactions) provides greater access to information and messaging services, and establish new ways for human beings to engage one another in commerce (not just information sharing).
In addition, the increase in storage capacity in computers, hard drives, discs, and other devices has led to a radical transformation in how information and products like music, movies and business documents are shared and used by an ever-expanding global audience.
Storage is a vital part of global information flow, just as storage is vital to the global flow of physical commodities as well. Hardware chips that continue to provide greater power to facilitate commerce are vital and profitable innovations.
A Glance at Digital Dynamos
It is important to highlight a few companies and services that are viewed as innovative, and test them against our questions.
Twitter: Twitter plans to go public within the next year, but just how profitable and innovative is this messaging technology?
Now, it certainly provides a great exchange of information, the very type of innovation we are looking for in this example.
But people taking pictures of their food at a restaurant and sending it to their friends isn't exactly the greatest marketing tool ever. Companies are still trying to identify their return on investment from social media dollars spent in an effective manner. Twitter, at the moment, appears to fit into the fad category, and will struggle for reasons similar to what has happened to Groupon Inc. (Nasdaq: GRPN) over the past two years.
NFC Technology: This mobile transaction technology accelerates the velocity of both physical goods (expediting the transaction between parties), and the flow of data and money between consumers and businesses.
NFC technology quickly allows individuals to bypass the current credit card systems, making shopping more convenient and the financial transactions much faster than its alternatives. As we will see, the technology also stands up against many of our other questions in the coming days.
Netflix: Netflix Inc. (Nasdaq: NFLX) is a perfect example of how a company is able to increase the flow of both the physical product (videos and movies) and the information in order to make it possible. Transactions between the provider and customer are instant, making it possible to download and play a movie at any time.
But as we'll see as we continue to ask the other four questions about innovations, Netflix will be highly susceptible to outside pressures, new innovations, and new rivals. The company stock may be hot right now, but eventually, without innovation, it could fall prey to our fourth question.
Tomorrow, we will explore the most important question of all. In fact, this question has led to billions of dollars of losses by the Department of Energy, created a crash in European markets, and made one sector the most important growth sector in the U.S. in the 21st century.
Check back tomorrow, and learn how to turn a small investment into a huge gain with this next question.
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