The Magic of Technology

Today we’ll wrap up our discussion on building an all-weather portfolio.

Looking back over the past two weeks, we have covered:

That leaves us with deepest and most diverse investment theme: high-technology stocks. They will be our topic for today.

And we have to start with one of my favorite quotes…

Any sufficiently advanced technology is indistinguishable from magic.

This quote comes from the late technologist Arthur C. Clarke. It’s in his book Profiles of the Future: An Inquiry into the Limits of the Possible… which published in 1962. Talk about prescient.

Here’s the thing – we all use space-age technology every single day and think nothing of it.

Text messages fly across the country. We send 2.4 billion emails every single second. Satellites bounce data all across the globe.

We all walk around with a device in our pockets that can access the entire store of accumulated human knowledge instantly, from pretty much anywhere.

This device allows us to do video chats with each other – just like the old Jetsons cartoon envisioned. And it can do almost anything else we ask it to.

It can give us navigational directions. It can tell us the weather forecast. It can send money to a friend. It can play music and movies. There’s an app for almost everything. Oh, and it allows us to make old fashioned phone calls too if we want.

If that weren’t enough, we can now buy virtually any item made anywhere in the world online, including food, and it will show up in a box at our door step in short order. That’s thanks to advanced logistics technology.

All of this would look like magic to my grandfather who died in 1994. Yet, we take it for granted today.

But very few of us understand how modern technologies like our smart phones work. And we certainly don’t consider that for every given technology, there are often countless other technologies working together behind the scenes to make it all go.

What’s more, we always tend to underestimate the impact new technology will have on our world.

Looking back 30 years… I still remember news anchors trying to grapple with this thing called “electronic mail” (email). In one segment I distinctly remember several anchors just trying to figure out what the @ symbol meant. They spent three or four minutes just on that.

At the same time, prominent economists told us that the internet wasn’t a big deal. One economist said it would have roughly the same impact as the fax machine.

Fast forward to today and our civilization would come to a grinding halt if something happened to the internet. We depend on it for everything.

Power production and distribution… money and banking… shipping and logistics… and lots more. Nearly everything is dependent on the internet and the technologies that enable it.

My point is this – a technology that very few understood or considered important 30 years ago has completely reshaped our world. That’s the power of sufficiently advanced technology.

And with every new technology, there are always numerous companies that advance it forward. Or leverage the tech into an incredible product. Those companies inevitably become great investments.

This is why we want to maintain an allocation to high-technology stocks. 

That said, the tech sector is deep and nuanced. Of all the investment themes we’ve discussed, tech is by far the most difficult to analyze. And it’s subject to bouts of volatility.

As such, we need to treat our high-technology stocks differently.

We should think of these stocks as a play on long-term trends in the technology space. They are much more akin to early stage private investments in that they can be risky… but they offer outsized upside potential.

-Joe Withrow

P.S. Are you worried about how interest rates and inflation will impact your investments?

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It all stems from the great economic divide we see happening today. And make no mistake about it – the rules of money are changing.

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