Why Betting Against Innovation Doesn't Work
Why Betting Against Innovative Companies Doesn't Work
I define "Innovative Companies" as pioneers in disruptive spaces that
radically transform consumer experiences on traditional products & services. The ideal innovative company also creates social impact - inadvertently or explicitly - through their objectives.
Now, it's easy to see a bubble forming in American markets. A flush of new retail investors and continued demand for stimulus money is inflating asset values.
But I have seen people overlap market direction with these innovative companies. Sure, a short-term correction is bound to happen in a euphoric investor-state. But no one can predict that downturn with full conviction. More importantly, a bear market does not devalue the long-term foundation of these innovative equities. This boils down to the issue of Timing the Market vs. Time in the Market.
Take Tesla, for example. A company that enters the S&P with a four-digit P/E ratio is sure to cause concern to many investors and "media experts". People also don't like the unconventional leadership of Elon Musk. Once investors navigate past the noise and speculation of when the "Tesla Bubble" will burst, holding Tesla emerges an obvious, simple strategy.
Is Tesla a pioneer in its space (Electric Vehicles)? Yes
Does Tesla redefine consumers' experiences of traditional products (cars)? Yes
Does Tesla create social impact through their products? Yes (A Greener Earth)
External factors such as a clean-energy focused Biden Administration also help. But long-term, Tesla is a creative leader in EV, a space that will inevitably replace gasoline-fueled vehicles. With Elon Musk at the helm, the company will continue to grow under his vision.
There are many other innovative companies that, when you sift past speculation and market trends, become simple investments. Lemonade is redefining how people file for insurance. Recent SPAC Opendoor Technologies is reshaping the way Real Estate transactions are completed.
One person who I enjoy following given his track record, Chamath Palihapitiya, stated in an interview with CNBC last year that "being long equities makes sense" and "being long innovation makes sense". People who forecasted the downfall of internet companies during the tech bubble may have been revered then. However, long-term, betting against a company like Amazon didn't work. Looking past speculation and market direction, innovative and market-changing companies always win in the long run.
Condensed Take: Timing the market is impossible, and you shouldn't judge innovative companies' growth prospects from general market direction and media speculation. It's best to buy and hold innovative companies that hit the checkpoints listed above.