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)