“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. It’s 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. “It’s 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 world’s challenges.”
Advisors need to understand that the world’s resources are being unlocked with new technological keys, Bowen argues.
Speed of Innovation
But don’t assume there will be easy and obvious investment choices to replace the investment strategies that worked in the last century. “The same techniques won’t 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 Moore’s 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.