Technomania
The craze for cryptocurrency, EVs, and other technologies through the eyes of 1999’s Warren Buffett!
Context: “We are living in the best possible times of all”, is what everyone before me living in their “best possible times,” said. Technology is a very mesmerizing thing, that lures us to see a future where it becomes quintessential. It is even more luring for people who they call, “investors”. This article explores how technology evolves with time and how optimism leads to its destruction and prevalence of Darwinism.
The Origin: So, a couple of weeks back I bought a copy of Alice Schroeder’s The Snowball: Warren Buffett and the Business of Life. It’s a thick biography filled with stories from the childhood of Warren till 2010.
The second chapter of the book named “Sun Valley”, was about the Buffetts visiting the Sun Valley Resort, “a green oasis….nestled among the brown slopes.” (the image below) There, Herbert Allen, the then CEO of Allen & Co. invited “his people of choice” to the get-together to discuss various topics of that time and beyond. His invitation list included people like Tom hanks, Bill Gates, Steve Jobs, et. al. Warren had to give a presentation on the technology stocks and the craze behind the various new internet-based businesses that were coming up.
As I was reading through the lines, I found multiple similarities with multiple upcoming technologies, and Buffett’s observations make so much sense.
Warren gave two examples. One from the nascent auto industry and another from the airplane industry in the States of the late 1800s and the early 1900s, respectively. The automobile (or the car) was one of the most quintessential inventions in the history of humankind. It was for the first time, that we stopped relying on animals to travel from one place to another and the vehicle carrying humans didn’t get tired or hungry. After Henry Ford optimized car production, there was no stopping. At its peak, there were 2000 companies manufacturing cars. Anyone living then would envision a future where countries and continents would get connected by roads, only. People wouldn’t walk and whatnot. But after 100 years, only three major car companies manufacture cars in the States (gasoline cars).
A similar trend was seen in airplanes, too. At its peak, there were more than 200 companies making airplanes; and yet only one (YES! one) survived. Boeing Inc. If you were a person living in that era where 200 airplane manufacturers were present, certainly you would have imagined a future where people do not walk or use cars for the commute; instead, use airplanes for a daily commute and maybe even imagine, transversing the globe in minutes. But that’s a pattern visible in almost every industry during its peak.
Unfortunately, 1999’s dot-com bubble was an example of that, too. People became so euphoric that they imagined a future where websites (not the internet) would become quintessential. Similar to the auto industry and airplane industry, out of 1000s of website companies, only five survived the dot-com crash viz. Amazon, eBay, Priceline, Shutterfly, and Coupons Inc. Rest all vanished.
However, I am observing the same pattern in cryptocurrency, Electric Vehicles (EVs), Artificial Intelligence (AI), Gene Editing, etc. Starting with cryptocurrencies. As of January 2021, there are 4000+ cryptocurrencies in the market. People’s interest has been exponentially rising around it, which is clearly visible from the Google Search Trends. There is a hyper-optimism around it. As it happened earlier, people are now imagining a future where people do not use money, instead use only cryptocurrencies, which is far from true, and similar to the dot-com bubble, people are ignoring the underlying technology: blockchain. Especially, investors.
Likewise, with Elon Musk propelling the EV revolution, people are optimistic that vehicles will run only on batteries, ruling out possibilities of hydrogen-powered cars, eco-friendly fuels, or maybe even nuclear cars (LOL!). Also, due to the recent progress around the development of AI (like GPT3), we are (again) imagining a future where it replaces us, humans (OFF-TOPIC: My next article will be on AI and the development of pseudo-consciousness).
Similarly, after Jennifer Doudna and Emmanual Charpentier won the Nobel Prize in chemistry for CRISPR-Cas9, people went bonkers on Gene Editing. There are a plethora of startups around the world working on this technology, promising a future without disease and being able to engineer humans, groud-up! Millions and billions of dollars are being pumped into these technologies. As to what might happen to investors who are investing in these technologies, well… Buffett said it best:
….although, innovation might lift the world out of poverty, people who invest in innovation historically have not been glad afterward.
So, what am I implying? This article just tried to explore the topic around hyper-optimism and how it, at times, derails technology from its evangelistic path to oblivion. In a way, this is true in life too. When things are going well, you assume that it will remain forever good; and at last, all we have is regret and remorse. As Howard Marks, puts it
….we shouldn’t get carried away when times are good and too despodent when they’re bad.
I hope you do not regret spending your time and reading this article (LOL!). Hope to see you next week.
Thank you for your time…
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