Try this thought experiment: Look back over the past 10 to 20 years and make a list of the most important commercial developments in medicine, science, technology and energy production.
Now, look at your list and think about where those innovations originated. Notice a trend? The bulk of those innovations originated from one specific country.
If you guessed the U.S., you’re right.
The point of this thought experiment wasn’t to discuss modern commercial innovations, but it answers a question we’re frequently asked: Where are today’s long-term investment opportunities in the U.S., given the media’s negative lens on the U.S. market?
It’s not all bad news, and there are a number of reasons why investors should remain optimistic. One often overlooked reason is the notion of the U.S. as a global innovation engine.
Here’s what we mean by this. First off, innovation has a positive effect on the overall economic environment.
Consider the jobs that didn’t exist in some of these industries or companies prior to the commercial developments on your list. These are jobs that were created alongside those innovations, not to mention the jobs that were created in places where people spent the money they earned from these jobs (such as restaurants, dry cleaning, furniture, etc.).
Now consider the incremental contribution to GDP and tax remittances the U.S. gained simply by virtue of being the home of these innovations. Add on the similar effects from this innovative culture, which permeate across other sectors, not just the industries mentioned above, and you’ve got a real fiscal “shot in the arm.”
The second big effect is that it can create a wealth of long-term investment opportunities that we may select to include in the portfolio.
The beauty of this culture of innovation is that it can be self-perpetuating. A prime example is Silicon Valley. Consider the following:
- How many other regions have spent substantial tax dollars to try to create something similar?
- How many companies were founded by ex-Google, Facebook or Apple employees?
- How many successful entrepreneurs reinvest either in subsequent ventures or help fund other companies?
You get the picture; eventually the result is one big virtuous cycle.
From our perspective as investors, sustainable competitive advantage is at the core of our investment process. As a team, we spend a healthy portion of our time looking for businesses that have a structural advantage. If we go fishing, we want to find a richly stocked pond, practically overflowing with fish so we can throw back those we don’t want until we make that perfect catch. We think the U.S. is that well-stocked pond and the culture of innovation is just one of the dynamics that makes it so.
What other countries and industries do you feel have benefited from innovative thinking? Share comments below or via e-mail.
Note: The companies mentioned in the article were selected for illustrative purposes only and are not intended to convey specific investment advice.
Learn more about the Trimark Investments team.