PayPal and Palantir co-founder Peter Thiel has some interesting takes, not all of which you may agree with. But he said something back in 2015 which was bang on:
“I’m always sceptical of sectors and trends. People always ask me what some trends are that I see happening in the future, and I have never liked the question because I’m not a prophet and I don’t think the future is fixed in that sort of way… At this point, I think all trends are overrated… if you hear the words ‘big data’ and ‘cloud computing’, you need to run away as fast as you possibly can. Just think ‘fraud’ and run away.
“All these buzzwords are a tell—like in poker—that the company is bluffing and undifferentiated… We’ve heard the buzzwords before, and so if you’re the nth company in a category that’s well established, that’s problematic… Conversely, I think the things that are underrated are the ones where there are no buzzwords and it doesn’t actually fit into any pre-existing categories… Of course, the challenge is that even the people who are running these companies will describe them in terms of existing categories because that’s so much easier to do.”
How many ASX companies have tried to win investor favour by hitching their wagon to the latest thing?
Artificial intelligence, or AI, is the latest example of a sexy thematic that everyone is piling into, but there’s always something new and sexy that’s capturing the market’s attention.
It’s not that these technological trends aren’t genuine, or have no potential commercial application. Rather, it’s that there is a hell of a gap between what is possible, and what is likely.
And even if a trend is indeed real, you can be sure that only a small fraction of players will ever achieve material and enduring success from it… and even then, it’ll likely take many years for things to play out!
The point is, as Thiel points out, if all you hear from management are buzzwords – run!
All commercial success – and I mean all – stems from a business’ ability to solve a problem for someone. No matter how much technological sophistication or originality you have, if it doesn’t make someone’s life better (even if that be in some crass, subjective fashion), then it is little more than an interesting novelty.
There’s nothing wrong with management talking up the potential of a new technology trend, but what really matters is how they are applying it to solve problems for their customers, and how that distinguishes them from others in the space.
If they can articulate the ‘how’ and ‘why’ without solely relying on jargon and hype, they’re worth paying attention to. Ideally, you’d actually see some actual evidence of demonstrable commercial traction.
Money talks, and you-know-what walks.
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