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Do you want to be rich or do you want to be poor?
That is the question that every American must ask.
As we noted last week, investment in technological innovation and global scale has been a key driver of wealth creation for the richest of the rich around the globe. But it also has led to the elimination of many lower income and middle class jobs across the country.
It's an economic phenomenon first explored by the classical economist David Riccardo called "Technological Unemployment," and it's beginning to affect individuals with even six-figure salaried jobs around the world as technology grows ever more sophisticated.
That got our team at Money Morning talking about the best ways to identify radical technology innovation and help readers protect their wealth, restore their confidence as investors, and identify the next breakthrough on the horizon.
By answering "yes" to six questions, one can identify the stocks and technologies on the cusp of being the next breakout, one that will rival the financial booms seen during the dotcom and current mobile tech era.
There are six questions that you can ask yourself when you begin investing in a company for its "next-generation" technology.
Now, this strategy won't guarantee that the innovation will be the next iPhone or America Online (at the time, AOL changed the face of the personal internet and its stock soared to record heights), but it will do something that is remarkably important for the retail investor:
It will significantly raise the probability of success.
And in a game of numbers, that is what we're looking for when it comes to technological innovation.
So, let's ask the first question and learn how to identify the next technology revolution or company poised to take the world by storm.
Let's Improve Trade, Shall We?
Like all six, the first question is simple, and requires you to spark your imagination.
Does this technology expedite the flow or increased scale of goods and services in the global economy?
We are looking for technologies or companies that are capable of enhancing production and scale, or expediting the physical transfer and trade of goods or services.
Specifically, we want to build it, ship it, trade it, or expedite service faster and more efficiently. And with this question, we are specifically focused on the physical goods that consumers or businesses purchase.
We want to think about any innovation that will improve the speed of logistical networks, including any innovation that will enhance physical travel. But despite all of the great technological innovation that surrounds us, the world hasn't drastically improved its travel technology in the last 60 years. Airlines are still relying on technology from the early 1960s, and freight and shipping services haven't radically innovated in a more cost effective manner in decades.
So, we'll need to look elsewhere for now.
As the chart notes below, there have been five great waves of innovation in the United States since the time of the Constitution. And every single one has enabled goods and services to flow in a more effective manner on a greater scale, and moved Americans off of the farms and into urban environments where they expanded companies and engaged in greater trade on a global scale.
Below is a historical chart highlighting the great waves of innovation since 1785.
Steam powered engines and the railroads of the day made it possible to ship commodities, textiles, and travelers across the country and oceans. The internal combustion engine would become the technology that ultimately fueled the largest supply chain in the world.
Aviation and petrochemicals have led to a global boom in trade, placing these industries at the very heart of global commerce. And the internet and computer software have taken the physical trade of goods to new heights. The internet has made it possible for buyers and sellers of goods to connect faster, expedite transactions, and increase the physical trade of goods and services.
So, let's take a look at a few technologies out there right now, and ask ourselves whether this is capable of meeting the requirements of our first question...
Does It Expedite the Flow of Goods and Services?
3-D Printing: Yes, 3D printing expedites the flow of goods and services, as it allows consumers to physically print products in their home. Though this is not large-scale manufacturing, we have seen companies begin to use the technology, and one day it could provide printing services to others in their homes
But at the moment, scale is a significant concern. The cost of the technology will need to come down to make it an attractive investment for the average consumer, particularly those who would want to save time and money in the production of printable products. We'll come back to this.
Mobile networking: Yes, mobile technology has drastically improved the flow of goods and services through mobile shopping and communications.
Fracking: Oil and gas drilling technology is undeniably essential to global trade. Both the physical trade of the fuels and the use of these fuels have been essential in increasing production and trade around the world.
Online Video Streaming: The streaming of movies and videos is indeed an innovation that makes it possible to expedite the physical product (the video) across networks. So, yes, companies like Netflix, Wal-Mart and Amazon all have created new innovations that have expedited trade and displaced previous technologies as a result (DVDs, VCRs, and so on). But all of them are highly vulnerable to the fourth question in this series, one that will change your mind about these services.
And the streaming itself should drive a more important question. When we think about the technology, we should think about what is making that streaming possible? For this reason, we need to dig deeper and recognize that it's actually the fiber-optic cables, digital networks and data exchanges that are the real source of innovation.
As we continue to ask these six questions, you will begin to see how they all work together and a story for each technology begins to unfold. We'll continue to ask these questions of various technologies in an effort to determine which technologies have the highest probabilities of breaking out in the future.
Tomorrow, we'll ask an even more important question that has risen in the age of the internet and mobile expansion.
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