Engines That Move Markets: Technology Investing from Railroads to the Internet and Beyond

From the Publisher

This complete and well researched history of industries and investing wouldn't be complete without a look at: how Thomas Edison lost control of his company, the impact of the Standard Oil breakup, the early days of the wireless industry, and the changing face of the computer industry today. Investors looking for industry-shaping investments will undoubtedly use Engines That Move Markets as their guide.

Excerpts

Questions Raised

• Could and should the bubble mania of 1999-2000, and the way that it developed, have been foreseen?
• What lessons can today's investors learn from the history of the railways, from the way the radio and electric light developed, and from other episodes of epoch-making technological change?
• What was the role of the press and financial commentators in terms of supporting share prices (or otherwise) during period of financial excess?
• What pointers from the past are relevant in deciding which (if any) of the pioneering companies of the Internet age - the likes of AOL, Amazon, and Yahoo, - are most likely to survive and prosper?
• Do investors in aggregate stand to make money from technological changes? If so, what are the characteristics of the most successful companies? And can investors predict the eventual winners with confidence?

The Scope of Research

The 10 historical episodes that are covered in detail in the research are:

• The railway boom in Britain, from the 1840s on
• The early railroad industry in the United States
• The development of the automobile industry
• The story of the discovery of electric light and its commercial exploitation
• The discovery and early development of crude oil
• The emergence of the telegraph business
• The early history of wireless, radio, and TV
  IBM and the growth of the computer industry
• The PC battles of the 1980s
• The Internet and the dot-com bubble of the 1990s

"The study of past financial history can be a rich source of inspiration and guidance for investors."

"As Mark Twain said, history does not repeat itself exactly, but it often rhymes."

"The bubble of the 1840s deflated under the weight of overheated expectations and changing economic conditions. In the fifty years that followed, investments in railways were not rewarding ones in either an absolute or a relative sense. There were occasional pockets of excitements which would cause railway shares to trade once more at levels that cuold not be justified in terms of underlying profitability. These pockets, though, were short-lived and set against a backdrop of a long-term declining trend."

"In aggregate, over a very long period of time, there is no question that, for all their economic impact, the railways provided negative returns, whether you measure that in real, relative, or absolute terms."

"Give that new technologies are prone to continuous change, and face in msot cases the inevitable intense business competition, identyfing in advance the companies with the best prospects is disfficult."

"Whatever the results, forecasts of profitability for a new technology often overstates its real economic potential, as they ignore the fact that there will be a competitive response. For new entrants, finances are invariably limited, and the inevitable competitive response produces worse-than-expected cash flow. As a consequence, even when the technology actually does prove to be superior, receivership and bankruptcy are still frequently the result."

"Among the producers of horse-drawn carraiges to enter the automobile industry, the msot notable and successful example was Studebaker, on of the world's largest producer of horse-drawn carriages and wagons. It had a well-developed distribution network and proved to be noe of the few traditional technology companies to make a transition to the new technology."

"The sahreholders of American Marconi (RCA) were treated to neither a detailed annual report nor any profits for the first ten years of the corporation's life. The annuak report typically consisted of a letter to shareholders and a balance sheet."

"On early PC operating systems, from the Financial Times, November 5, 1982: CP/M is seen as the VHS (the video standard) of the industry against the Betamax of another microcomputer operating system for 16 bit machines, MS/DOS from Microsoft. (...) My money is on CP/M 86 - but I'll take a side bet on IBM and MS/DOS."