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   Investment Thoughts - Beyond Finance

Creative Destruction in Action
The singular aspect of Moore’s law means that these disruptive forces are becoming more frequent and therefore occurring over a shorter period of time. We should prepare ourselves for some exciting developments over the coming decades.

 

 

Creative Destruction in Action

 

“The technology at the leading edge changes so rapidly that you have to keep current after you get out of school. I think probably the most important thing is having good fundamentals.”
Gordon Moore, 1929-, co-founder of Intel Corporation


Technological progress has been following a quasi-exponential growth path, ever since the advent of integrated circuits, the processors that power computers. Gordon Moore, co-founder of Intel, in 1975 predicted that the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This is a remarkable example of forecasting which has remained true to this day. The consequences of the exponential increase in computing power is becoming more tangible as leaps and bounds in technological progress occur over increasingly shorter periods of time. The type of progress that in the past may have taken an entire generation to materialize now takes place over a period of a decade or less. By progress I mean “revolutionary” rather than “evolutionary” changes that have the power of reshaping entire industries. This is “creative destruction” in the making.

 


Printers, Genes and Gray Matter?

 

Over the next decade or so, there are a number of fields in which new discoveries are bound to have profound effects on industries, and three of them really stand out. They involve printing, healthcare and artificial intelligence. Tremendous progress has been made in these fields but the true commonality they share is that, thanks in large part to Moore’s law, the revolutionary changes have become accessible or affordable to the masses. The consequences are truly profound as entire industries and lives are likely to be impacted by them. This is creative destruction in action!

 

By printing technology, I don’t mean the now ubiquitous two-dimensional printing that we are so acquainted with. That is a commoditized industry with not much progress left. What I am referring to is three-dimensional printing, also known as “additive” printing. These are printers that use materials such as resin to build physical objects out of a digital 3D design. The technology has existed for some time but prices have been dropping steadily and are now at a point where it is affordable by the masses. Think of the disruptive effect of this on manufacturing. You suddenly have access to a tool that doesn’t require economies of scale to be cost effective. What used to belong to the realm of large manufacturers can now be replicated by households. With 3D printing, you will be able to create prototypes of anything both rapidly and cheaply, you will be able to “print” a copy of that broken user replaceable part and you will be able to customize an order to suit your personal taste and/or needs. The applications are endless.

 

The second disruption is in healthcare through the way in which genomics is likely to influence the future of medicine. Genomics is the field of genetics, which includes the deciphering of human DNA. Again, thanks to Moore’s law, the deciphering process that, in the past may have taken months or even years to achieve, and cost thousands or even millions of dollars has now reached a point where it is affordable. With todays computing power you can crack a person’s entire genetic code in less than 24 hours and at a cost of not more than $1000. The consequences are huge. Therapy will become far more customized, targeted, and of course effective. Preventive medicine will also get a huge boost from this, as the DNA information will allow doctors to better guide their patients with regards to their lifestyles.

 

The third area is artificial intelligence (AI) which, as a field, has seen very little progress from the 1970’s right until the beginning of this century. Technological changes over the last decade, that include the increase in computing power combined with the advent of the Internet and search engines are what have allowed AI to move onto the next level. IBM in particular, through its now famous “Watson” project, has been in the forefront of revolutionary breakthroughs. They built an AI based system which last year was able to outsmart two of the most seasoned human contestants in a challenging game: Jeopardy. Watson is now being tested at the prestigious Sloan-Kettering Cancer Center of New York to assist doctors with complex cases. This is only the beginning, however, as the applications of AI are also unlimited. Think of the benefits to military, legal, commercial, and financial disciplines that AI could contribute.

 

History is replete with examples of disruptive advances that end up reshaping entire industries. The singular aspect of Moore’s law means that these disruptive forces are becoming more frequent and therefore occurring over a shorter period of time. We should prepare ourselves for some exciting developments over the coming decades.

 

And Where Do We Go From Here?

 

Click here to download the full report in PDF

 

 

Altug Ulkumen, CFA

Partner & Chief Investment Officer
Lobnek Wealth Management
altug.ulkumen@lobnek.com

Lobnek Wealth Management, Newsletter, May 2012-Altug Ulkumen, CFA, Partner & Chief Investment Officer

23.05.2012


 

Themes

 

Asia

Bonds

Bubbles and Crashes

Business Cycles
Central Banks

China

Commodities
Contrarian

Corporates

Creative Destruction
Credit Crunch

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Current Account

Deflation
Depression 

Equity
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Yield