The Danger of Investing in Innovation

I've been reading a book on the life of Warren Buffett called "The Snowball". It's a fantastic read so far. One of the reviews calls it the capitalist Bible, and I think that I have to agree with them. Towards the beginning, there is a speech that Warren Buffett is giving to a lot of other successful businessmen in Sun Valley, Idaho where he is talking about the danger of investing in innovation. This surprised me at first because I thought that of course one would want to invest in innovation. After reading the speech that he gave, I think I have to agree with Warren Buffett. After reading this, I added a lot of his points to my investment strategy. 

Warren Buffett showed evidence for this point by showing a few examples. One was cars. The car was probably the most important invention of all time. It drastically changed our entire way of life. How many people, however, made money from investing in car companies. Well, at one point there was 2,000+ car companies that one could invest in. All but 3 went out of business. Most of the companies people were investing money into failed. 

Warren Buffett also used airplanes to prove his point. The airplane was another amazing invention that changed the world. Again, one would expect people that bought airplane stocks to have made a nice profit. They didn't. Most people that invested in airplane companies actually lost money. Buffett then essentially said that if he saw the Wright brothers flying their plane he would hope that he would have enough foresight to shoot the plane down to help save capitalists from losing so much money. 

The overall point is that a lot of people believe that they should be investing in the future. They believe that they need to find the next big thing. Historically, that has been an amazing way to not make any money though. 

I believe that we will see another example that proves this point in the near future. Electric Vehicles (EVs) are believed by many to be the future. I agree with this. We have seen the creation of many EV companies. While I have no interest in trying to predict which of these companies will succeed and which one of these companies will fail, I will say that I believe more than most will go to 0. Most people that invest into EVs will lose money in my opinion. I do believe that EVs are the future, but I believe most EV investors will lose.

I also believe that this will be true for the metaverse. I actually agree that the metaverse is the future. I believe that VR will be the next big thing. Most VR companies, however, will fail in my opinion. Most of the people that invest in VR will lose money.

​Join our newsletter to have all of our future articles emailed directly to you!