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Michael Mauboussin on Market Concentration, Capital Allocation & Attributes of Great Investors | #545
The Meb Faber Show - Better Investing
The Investment Landscape of Emerging Technologies
The investment landscape for emerging technologies, particularly in AI, is characterized by a high volume of experimentation and a significant number of startups entering the market. Many of these ventures, often with sky-high valuations and no revenue, represent a typical pattern associated with new technological advancements. Investors see this phase as a critical period where market preferences emerge and only a few companies will ultimately succeed amidst a backdrop of possible failures, mergers, or closures. Historical parallels with industries like the internet, electric vehicles, and personal computing highlight that this cycle involves considerable risk but is essential for identifying viable opportunities. The majority of venture investments tend to lose money, following a pattern where only a small fraction yields substantial returns. An understanding of this cycle, as illustrated by research on investment outcomes, suggests that while daunting at the micro level—especially for those directly affected by a company's failure—this dynamic is a vital process in the macroeconomic landscape of venture capital. This cyclical nature of heavy investment followed by purification is indicative of innovative markets, reinforcing the notion that periods of high failure are intrinsic to finding eventual winners.
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