Personal Portfolio
ARMHY 16%
BEAS 11%
CREE 5%
QCOM 47%
RMBS 18%
SCON 3%
What is the single most important thing I've learned in the past three years?
It is Carlota Perez's (2002) explanation of the dynamics of bubbles and golden ages. Having been caught up in the greed and frenzy of the fifth technology revolution, The Age of Information and Telecommunication,I made and lost a seven figure fortune. Setting aside my personal greed, denial of evidence for the bubble, stubborn adherence to LTB&H, impulsive buys, lack of a sell strategy, penchant to search for off-beat treasures, eternal optimism, and a need for autonomy that overwhelmed prudence and common sense, I did not know of, much less understand, a significant historical pattern know as a "bubble."
Acording to Dr. Perez, each of the four prior technology revolutions followed a recurrent pattern.
First, the Irruption Phase: A world threatened with stagnation as the industries of the old paradigm face markets saturated with mature technology suddenly experience an irruption of new possibilities in new designs, products, and profitability from a new technological paradigm. The ever better, ever cheaper technology attracts entrepreneurs and investment capital.
Second, The Frenzy Phase is taken over by financial capital, whose interests rule the period. The paper economy decouples from the real economy, a time of speculation, corruption, and unashamed love of wealth. Bold and diversified entrepreneurial investments demonstrate by trial and error the potential of the new technology to invent new markets and to rejuvenate the old one. Much of the excess capital investment pours into the infrastructure of the new technology, leading to canal, railway, or Internet mania, with subsequent over investment. The new capacity of money to generate wealth attracts cab drivers, day traders, gurus, and crooks. Shakeouts follow frenzy. Corruption is investigated.
The Turning Point, which is where we are now at the end of 2003, conceptually marks a period of rethinking and rerouting that is necessarily a process of contextual change. The context must change from a frenzy driven by finacial criteria, gone greedy or crooked, to a synergy mode, solidly based on growing production. It reorients us to earnings, margins, and profits not promises of furture profits and mere revenue growth.
With the installation of the new technology completed, the Synergy Phase focuses on production in ways that create dynamic expansion and economies of scale. Although not exuberant, growth can be steady and harmonius, raising the quality of live across economic levels. With the infrastructure in place and becoming ubiquitous, production improves the quality of life. Millionaires are more rare but productive investment and work lead to a peristent accumulation of wealth. "The new paradigm reigns supreme; its logic permeates every activity, from business to government to education."
The Maturity Phase marks the twilight of the golden age. It is a time for quesioning complacency. Markets are saturating and technology is maturing.
These recurring sequences are manifested in parallel, but not absolutely identical, phases across the four prior technology revolutions.
Only by knowing where we are now can we plot our future course. This is the single most important thing I have learned in the last three years.
Should you perceive the makings of another bubble, please describe your exit strategy as it currently exists?
Given this framework and my status as a senior citizen, I do not expect another opportunity or bubble of this proportion in my lifetime. However, I do believe that stock values, even of gorillas, can become unrealistically inflated. I plan to develop an exit strategy, but I have only a few clues toward one at present.
I hope this helps.
Don |
