When a new technology innovation is introduced to society, it can take years for the new product or service to penetrate the market. Some of the limiting factors in the early years could be cost, consumer awareness, and accessibility. Excellent investment opportunities and returns can be made by finding companies or sectors that are at the beginning of their Adoption Curves, or S-Curve.
Breakthrough technologies typically follow a somewhat predictable path towards penetrating a market. The graph below highlights the different phases of growth in the S-Curve.
This graph visually shows the cumulative rate the population adopts a product, service, or technology over time. If you can find a company that is moving from the early adopters to the early majority of consumers, you can have confidence the company is at the beginning of its growth phase. As long as this company keeps improving, innovating, and stays ahead of competitors, your investment returns could be substantial. Exponential growth along the S-Curve is where fortunes can be made for investors and innovators.
The rate of technology adoption varies amongst products and services. Factors could include cost, awareness, and accessibility. Below is a chart showing some different products and their S-Curves:
The steeper curves of the newer technologies from the past twenty years are significant. The pace of disruption happens faster nowadays compared to earlier in the 20th century. This implies finding companies with a first-mover advantage is far more valuable now than in the past. If an incumbent, or legacy, company in a sector gets disrupted by another startup company, as this chart shows, they do not have enough time to catch up.
S-Curves are a useful and insightful academic tool for financial advisors analyzing investment opportunities. The pace of technology disruption has accelerated and rewards innovators and savvy investors who find these opportunities before the masses. A skilled financial advisor will make the extra effort to find these opportunities for their clients, such as at Musser Financial Planning. Most non-financial professionals do not have the time or expertise to find such opportunities. If you would like help managing finances utilizing state-of-the-art financial tools and models, contact David Musser for a FREE 30-minute consultation at musserfinancialplanning.com.