At the Palace of Versailles one evening sometime in the 1840s a group of royals sat down for dinner. Napoleon III, eager to impress his guest, the King of Siam, pulled out all the stops. His troops dined with silver cutlery while Napoleon himself used gold. The highest honor, however, went to the visiting monarch, who cut into his cuisine with -- wait for it -- aluminum.
It turns out that in the mid-1800s, aluminum was the most precious metal on the planet, says Peter Diamandis, space pioneer and author. Even though the earth is made of 8.3% aluminum by weight, all of the aluminum on earth is bound to oxygen and silicates to form a clay-like substance called bauxite, and it was so energetically difficult to remove the aluminum from the bauxite that it was worth more than gold and platinum.
Not until the process of electrolysis for extracting the metal was invented in 1886 did aluminum become so common that we would begin using it for throwaway items like foil and soda cans. And similar technological breakthroughs will soon make currently scarce necessities like energy and water equally abundant and affordable, argues Diamandis, who is the founder of the International Space University and the co-founder of a new institute devoted to teaching students and executives about the anticipated impacts of technological change. The latter is Singularity University, based at the NASA Ames research park in Mountain View, Calif., and co-founded by Google, Autodesk and Cisco.
Implications of Abundance
Abundance is the title of a recent New York Times best-selling book by Diamandis, which examines potential far-reaching impacts of coming technological breakthroughs on global society and free markets. Its a concept that advisors need to understand and embrace, argues Financial Planning columnist John Bowen, who is hosting Diamandis on Monday in a webinar for planners.
The reason financial advisors should be interested in [this] is not that these are great investment opportunities, Bowen says. Its an abundance mindset for themselves and that they can communicate to clients.
Cultivating this perspective, he believes, is an important counter-balancing measure needed to offer clients a well-rounded, and realistic, view of the future. Negative daily news media headlines distract from larger and more profoundly positive trends, he and Diamandis believe.
Bowen predicts that most giant technological breakthroughs will be funded primarily with venture capital by ultra-wealthy investors with $25 million and up at their disposal -- in other words, by investors who can comfortably survive huge losses. This puts these investments far out of the reach of most conservatively minded advisors and their clients.
However, those cutting-edge startups that survive will give rise to more mainstream companies that advisors can steer the mass affluent and middle-class investors to, Bowen says. What I want [advisors] to communicate to their clients, the planner says, is how free markets are solving the worlds challenges.
Advisors need to understand that the worlds resources are being unlocked with new technological keys, Bowen argues.
Speed of Innovation
But dont assume there will be easy and obvious investment choices to replace the investment strategies that worked in the last century. The same techniques wont hold for the future, Diamandis said in an interview. I think what has been sort of the traditional safety net for the last 100 years surely is going to change.
In particular, Diamandis believes that relying on large corporations as safe harbors may not be a good bet going forward. To take just two examples, he pointed to the collapse of the music industry and of Kodak. The latter is especially remarkable in light of the stunning rise of the free photo-sharing service Instagram, which Google acquired in April for about $1 billion.
Across all industries, the pace of innovation is being driven by Moores Law. In the late 1950s and early 60s, Intel founder Gordon Moore noticed that the number of transistors his company could fit on a microchip doubled roughly every 16 to 24 months, while the price of those chips dropped by half. That pace has held up throughout the evolution of computing, starting with mechanical computers and continuing through relays, vacuum tubes, transistors and integrated circuits.
The processing power available to everyday consumers has become so formidable today that, says Diamandis, Maasai tribesmen in Kenya (not to mention American kids) with smartphones have more computing power at their command than Bill Clinton did when he was president.
The impact of those soaring processing speeds is beginning to have almost unimaginable impacts, he says, beginning to explode upward -- ushering in new revolutions in health care, energy production and access to water, he predicts.
Most people have not been prepared for the profundity of this coming change and underestimate the kind of power they -- and most people on the planet -- will soon possess, Diamandis says. Were going to have $1,000 laptops that compute at the rate of the human brain in a decade, Diamandis says, and at the rate of the human race in 40 years.
3 Billion New People Online
In the webinar, a preview of which was made available to Financial Planning, Diamandis points to another key prediction that is both anticipated by many but largely overlooked: an additional 3 billion people will gain access to the Internet by 2020. By contrast, about 2 billion of the globes 7 billion inhabitants are using the Web today. The next generation of users will come from developing countries where people make as little as $5 a day, he says.
Think about this, Diamandis says in the webinar. In the next eight years, 3 billion new minds are going to enter the global conversation. These are people whove never been heard from before, whove never bought anything, whove never provided anything. They represent a new populace of innovators, people who are going to make discoveries, people who are going to manufacture, people who are going to consume. They represent tens of trillions of dollars plugging in, flowing into the global economy, which people are not thinking about or talking about.
Tapping into these consumers will create vast new wealth, both Bowen and Diamandis think, and investing opportunities for advisors.
Diamandis, who says one of his goals is to transform philanthropy, is doing his part to catalyze technological breakthrough through the X Prize Foundation, which he founded and chairs out of its headquarters near Los Angeles. Diamandis was inspired by the historical power of high-profile prize money to spark technological breakthroughs and let would-be philanthropists make a lasting mark.
In the 1700s, for example, new navigational technologies capable of pinpointing longitudinal position were invented thanks to a global contest sponsored by the British crown. And in 1927 Charles Lindbergh crossed the Atlantic in pursuit of $25,000 in prize money put up by hotel magnate Raymond Orteig. It was a transformative event for the airline industry, Diamandis says. Over the following 18 months after the aviator completed his historic flight, the number of people who bought airplane tickets jumped from 6,000 to 180,000.
In 1996, Diamandis X Prize Foundation launched a global competition, with $10 million in prize money to the first non-governmental team that could build a spacecraft capable of making two trips into space within a span of two weeks. The contest produced a winning team eight years later in 2004. More significant, says Diamandis: During the course of the competition, 26 teams from seven countries invested more than $100 million to vie for the prize. Thats incredible leverage, he says. You only pay the winner.
Virgin Airlines founder Richard Branson licensed the winning spaceflight technology that makes use of lightweight carbon fiber materials. Today that technology forms the basis of his company Virgin Galactic, which has already taken test groups of ticketed passengers to just above the Earths atmosphere and plans to make regular suborbital trips for paying passengers in the near future.
Since then, the X Prize Foundation has funded many other prizes, in areas ranging from automobile efficiency to genomics and poverty eradication. Wendy Schmidt, wife of Google Chairman Eric Schmidt, funded a $1.4 million X Prize to find more efficient ways of cleaning up oil spills before they reach shore. The first-place team was awarded $1 million last fall for creating a technology that is three times faster than the oil industrys previously recorded clean-up rates.
Bowen, who runs a master group for top planners, say advisors today are feeling beat up, and have begun to question whether capital markets really work. He believes its clear they do work and will play an important role in solving major world problems.
Its critical, in his view, that advisors begin to understand that society is on the cusp of dramatic change, and for the better. This is something that financial advisors should know for themselves, Bowen says, but also to help their clients understand just whats possible.