History is replete with examples of businesses and consumers ignoring or dismissing big ideas, particularly those associated with disruptive innovation. In 1876, for example, when Alexander Graham Bell was granted the official patent for the telephone, many businesses dismissed it as irrelevant or insignificant. Famously, Western Union took a pass on buying the patent.1 Likewise, many considered the automobile just a curiosity or a fad. In 1899, The Literary Digest magazine summarized the prevailing response in this way: “The ordinary ‘horseless carriage’ is at present a luxury for the wealthy; and although its price will probably fall in the future, it will never, of course, come into as common use as the bicycle.”2
Despite its potential, innovation typically needs time and maturity before gaining mass market adoption. Consequently, with a focus on benchmarks, sectors, and short-term performance, traditional investment managers often minimize or misunderstand its potential.
Through an open research process that cuts across sectors, industries, and markets, ARK seeks to identify innovation platforms with dramatic cost declines, strong price elasticity of demand, and convergence which spawns further innovation.3 Today, we believe that artificial intelligence, energy storage, robotics, genome sequencing, and blockchain technology are the innovation platforms leading the global economy into what could be the most transformative period in history.
While we expect each of these innovation platforms to create multiple trillions in market capitalization, the deflationary boom that they are creating, particularly as they converge, is throwing off the meaning of certain economic signals, importantly the yield curve. Today, equity markets fear the impact of a “bearish flattening”, but we believe that a “bullish flattening” is underway as technologically-enabled innovation platforms and productivity gains evolve into a “deflationary boom” the likes of which we have not seen since the late 1800s. During the 50 years ended 1929, the yield curve was inverted more than half of the time as the disruptive innovation platforms of that day – the automobile (internal combustion engine), telephone, and electricity – unleashed periods of extraordinary real growth at low rates of inflation. The steepest inversions occurred during periods of the most rapid growth in real GDP. We would not be surprised to see this seeming “disconnect” during the next few years, but investors will have to extend their time horizons and their understanding of economic history to understand the economic impact of these profound technological breakthroughs.
To illustrate the impact of innovation and excite investors about the opportunities, each year we publish “Big Ideas”, a selection of our original research highlighting the technological breakthroughs we believe will advance significantly over the coming year. Thanks to the five foundational innovation platforms, we believe these technologies are ready for prime time.
1. Deep Learning –
Is it a larger opportunity than the Internet?
2. Digital Wallets –
Could they spell the end of traditional banks?
3. Cryptocurrencies –
Are we witnessing the rise of an alternative financial system?
4. Battery Cost Tipping Point –
Could EVs become cheaper than comparable gas-powered cars?
5. Autonomous Taxi Networks –
Will they become the most valuable investment opportunity in public equity markets?
6. Next Generation DNA Sequencing –
Could it unlock the code to life, disease, and death?
7. CRISPR For Human Therapeutics –
Will health care become cheaper and curative?
8. Collaborative Robots –
Will robots be your next co-worker?
9. 3D Printing for End-Use Parts –
Will manufacturing ever be the same?
To read our research report and understand how we modeled our estimates, we invite you to download Big Ideas 2019!
The information provided is for informational purposes only. It does not constitute any form of advice or recommendation to buy or sell any securities mentioned. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on ARK's current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Past performance is no guarantee of future results. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. For a list of all purchases and sales made by ARK for client accounts during the past year that could be considered by the SEC as recommendations, click here. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. For full disclosures, click here.