One of the terms often heard in the
business and investment world over the past few years would be “disruptive
technology”. Disruptive technology means
“a technology that significantly alters the way that businesses operates.” 1
It is natural for this phrase to
appear here and there, especially when we are living in a fast developing
technological world and we see instances of new business models with the
potential of replacing the old ones.
The fact is, disruptive technology is
nothing new. To start off, the term itself is an incarnation of other phrases
that have popped up over the last 70 years or so. We have “creative
destruction” by renowned economist Joseph Schumpeter, who coined it in 1942;
then we have “paradigm shift” mentioned by the physicist Thomas Kuhn in 1962.
The changes, however, have grown faster
than ever before, all thanks to the internet and the speed of adoption of the
technologies by the general masses. A good example would be Uber and Grabcar,
whose business model is giving the taxi industry a run for their money.2
A lot of blue chip listed companies
belonged to the traditional industries. No doubt these companies would be
looking at how to deal with disruptive technologies, but as an investor what
would you look out for?
There are a few ways to capitalise on
disruptive technologies. One way is to invest in disruptive technology
companies themselves. However, there are some minus points to this; some of the
known disruptive technology companies are not publicly listed, but in the domain
of private equity investments, which are not easily available for retail
investors like you and me. Even if the companies are listed, they are typically
in the beginning stages and yet to “prove” themselves.
The safer alternative is to look for sectors
and industries that are associated with disruptive technology companies. Enter
“associative investing”, where we invest in areas that support and/or resulting
from the disruptive technology companies themselves. Using the example of Uber
and Grabcar, we could consider the automotive and internet industry (support in
the form of cars and delivery of the booking platforms respectively) and
companies dealing in payment solutions (result in the use of credit card
payment facilities for the trips).
From here, we could conduct further
fundamental analysis before deciding on the company(ies) to invest.
1- Investopedia. Disruptive Technology. http://www.investopedia.com/terms/d/disruptive-technology.asp
(accessed 7 Aug 2016)
2 – Lee, Amanda. The Big Read – Not for the
first time, new entrants turn an industry on its head. Today. 24 Oct 2015. http://www.todayonline.com/singapore/big-read-not-first-time-new-entrants-turn-industry-its-head-0
(accessed 7 Aug 2016)
