New things are exciting. Perhaps too exciting.
As I wrote in my recent Forbes column – and by the way, if you’re in the Superfan mood today, you can subscribe to both this blog and to my Forbes column directly (both help us at BBAE) – Crunchbase, nearly 30,000 companies come up when you search for “AI.” All aren’t pure-play, but thirty thousand is a lot.
But as with automobiles – the US, for instance, has had thousands of car companies, but just a handful now – and e-commerce platforms (in the late 1990s, Amazon and eBay had hundreds of competitors before most vanished) – and cryptocurrencies (there were more than 40,000 various coins at one point), AI fits solidly in the “cool new thing” bucket.
There’s nothing wrong with cool new things.
What’s wrong – at least for investors and new entrants – is that so many investors and so many new entrants chase the cool new industry that all the coolness gets used up, leaving dead bodies (not literally, but you know what I mean) and low returns.
As I cite in my article, the dot.com bubble came and went, leaving investors off right about where they started.
Ditto for the more recent biotech bubble.
I’m speaking in aggregate statistics, and individual results will vary. If you’re really good at spotting eventual winners amidst throngs of also-rans, then this is how you should invest. Go for it.
But for most investors (and most potential industry entrants), I think awareness that the odds aren’t on your side, at least according to history and academic research, is part of the battle. Another part is consciously disambiguating the success of the cool new thing writ large from the success of individual entrants and their investors. Autos, e-commerce, and AI have added or will add tremendous value to humanity. That’s great. But that does not mean that all companies and all investors in those companies will reap that value – or even that most will.
To rephrase a point I made in the Forbes piece, If a great concert is held in a room that sits 50, and 2,000 people show up, most are going to be stuck outside, regardless of how good the concert itself is.
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