Technological advances are the cornerstone to sustainable and durable economic growth.
As investors, we must properly evaluate the hype and promise new innovations offer against the cost to acquire them.
Productivity is the key to economic growth.
“If valuations are similar or higher than past bubble peaks, how can today’s cycle not be considered a bubble?” –Eric Cinnamond (value investor)
If you listen to the financial media, the recurring answer to Eric’s question is in reference to the wave of amazing technology sweeping the globe. Technological advances are the cornerstone to sustainable and durable economic growth. As investors, we must properly evaluate the hype and promise new innovations offer against the cost to acquire them.
Think about some recent innovations that have changed the way you live:
- With a click on your smart phone a car appears to take you to your destination. Soon artificial intelligence will make that ride much safer and more time efficient.
- Put on a virtual reality headset and gaze around the Grand Canyon.
- Wear a wristband that tracks your exercise activity, weight and sleep cycles.
- Find dates online without cheesy pickup lines.
- The Internet of Things assures us that houses, cars, appliances and an endless array of systems and devices will collect and exchange data allowing us to monitor and control them remotely.
- And of course, you can shop anytime, at any major store and in some cases receive your goods within hours.
Recent advances in technology save us time, effort, and money but they are doing little to generate sustainable economic growth. Sustainable economic growth is dependent upon sustainable gains in productivity, and domestic and global productivity growth is flat lining despite these innovations. Without consistent productivity growth, corporations must cut labor costs and reduce investments and capital expenditures to increase profitability. In other words, they must continually find new ways to increase their margins.