Monday, November 29, 2010

Another wake-up call
















The world is mostly consumed with worry over European sovereign debt as we head into the end of November. We've discussed this subject several times in the past, in posts such as "The question of our time," (06/06/2010), "Not fragile" (07/28/2010), and the recent "European debt issues and the primacy of growth" (11/08/2010).

We've said all along that this "crisis" is actually a good thing (or at least, that it has a silver lining), if it causes people to realize that the endless growth of public-sector (government) jobs and entitlements must be brought to heel, and that the real solution to the problem is to foster private-sector growth and innovation. As George Gilder -- one of the greatest thinkers in the United States for the past four decades -- explains in an article linked in this post, the simple formula for encouraging private-sector growth and innovation is simply lower taxes and sound monetary policy.

There are encouraging signs both in Europe and in the United States that people are starting to get this message.

While they work that out, we would recommend investors focus on the exciting opportunities for growth taking place right before our eyes. In the video above, former Morgan Stanley analyst Mary Meeker* gives a rapid-fire presentation from the recent Web 2.0 summit in the San Francisco Bay Area that highlights the phenomenon we have called "The Unstoppable Wave" and presents incontrovertible evidence that it is definitely taking place.

We would recommend that all investors watch this video and think very carefully about the implications of the trends she is discussing. While the speaker is framing the ten topics she discusses as "questions that internet company executives should be asking themselves" right now, we would argue that they are questions that every investor should also be asking themselves as they commit capital to one company or another (whether in the form of buying bonds issued by a company -- or a country -- or in the form of buying stock).

The speaker touches briefly on Clayton Christensen and his insights into what he calls "disruptive innovation." This is an extremely important concept for investors and one we discussed in some detail in "Clayton Christensen, disruptive technology, and your portfolio recovery plan" (02/04/2009), and we recommend revisiting that post and following some of its links before watching the video above.

This video discusses a huge ongoing phenomenon that illustrates what Dick Taylor and Thomas Rowe Price were talking about when they recommended that investors seek "fertile fields for future growth" (often characterized by what are called "paradigm shifts" today). We believe that many investors -- including many professional investors on Wall Street -- are still not completely tuned in to the size of this ongoing paradigm shift. Investors who heeded our posts on this subject from late 2008 and early 2009 could have taken advantage of some excellent investment opportunities related to this tectonic shift. If not, this can serve as another wake-up call.

While the rest of the investment world focuses on sovereign debt alarm bells (alarm bells that are generally providing a healthy wake-up call to the dangers of creeping public-sector expansion), we recommend investors pay attention to the trends highlighted in this recent video, and ensure they are preparing for them in their own businesses and in their investment portfolios.

* At the time of publication, the principals of Taylor Frigon Capital Management owned preferred stock issued by Morgan Stanley (MS).

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