What if the Next Big Thing Is Already Here?
Companies / Investing 2014 Nov 01, 2014 - 11:37 AM GMTBy: Investment_U
Andrew Gordon writes: Here are some really easy questions...
Are driverless cars the "next best thing"?
Is the new iWatch, expected to come out early next year, the "next best thing"?
How about SpaceX's private spacecrafts?
Or drones? A lot of people think they're going to "change everything."
You agree? Well, a dozen drones will be hitting the market soon.
Which one will take off (sorry for the pun)? This one?
Actually, these questions aren't so easy.
Founders like to talk about their products being the "next big thing." Or that their technology is going to "change the world."
Chances are, the founder really believes it. There's nothing wrong with that.
But you shouldn't.
Google Versus Apple
I recently read an article comparing Google and Apple. It explored which company is most likely to come out with the next great innovation.
The article's answer? Google.
I can see that. Google is working on several "moonshots," from artificial intelligence to space travel.
If Google hits a home run with just one of them, it should be a huge revenue booster. With an annual revenue run rate of $68 billion, that's not easy to do.
So it makes sense for Google to invest in the "next big thing."
But does it make sense for you?
The cynic in me says no. It's too hard to predict. And therefore too risky.
Even if you get the sector right, say, predicting private space travel will take off, you still need to pick the right company and the right technology.
That's a tall order. The vast majority of investors wouldn't be plugged in enough to make the right call.
This isn't about jumping in and taking a deep dive. I do that all the time. This is about already swimming with the sharks or other deep-sea creatures like the extremely ugly blobfish...
You need an ultra-deep understanding of the sector, including a fat Rolodex of contacts to keep you up to speed.
But don't worry if you don't have this. I have another strategy for you. I've been using it for the past 30 years or so with great success. I call it my "DoubleX" strategy, named after Levi Strauss's original jeans, called "XX."
It was also an industry term meaning "highest quality."
Levi Strauss struck it rich in California's Forty-Niner gold rush, but not by finding gold. He sold his heavy denim pants to gold miners as fast as he could make them.
The first step of my strategy? Pick an industry/sector/product that's already taking off. You're not guessing about the next big thing, in other words. It's already happening.
Second step: Choose a high-quality supplier.
So, how would this work in practice? I have the perfect example for you.
It's real and it's happening right now.
Sensor Technology Is Taking Off
The mainstream financial media isn't giving this sector much publicity because, right now, it's really just one company doing the heavy lifting.
That company is decidedly unsexy. But I've been talking about it since August. The company: General Electric (NYSE: GE). The sector? Equipment sensors.
GE has so far attached sensors to 21,500 locomotives, 23,000 wind turbines, 3,900 gas turbines and 20,700 pieces of oil and gas equipment. The resulting data is then fed to repositories for analysis.
GE is already getting amazing results.
For example, it has identified jet engine defects 2,000 times faster than before.
GE will make over a billion bucks this year from its sensor business, setting a record for the fastest time a GE business has reached the billion-dollar mark.
This business is already huge. GE now gathers 50 million pieces of data from 10 million sensors, off equipment worth $1 trillion.
But this is also just the beginning. It's going to get much bigger. William Ruh, vice president of GE, says it's only a tenth of the way there. "In 10 years, 17 billion pieces of equipment will have sensors."
And Ruh isn't including the other big industrial companies. We can fully expect Siemens, ABB, Honeywell, 3M and many more to follow GE's example.
The "DoubleX" Strategy in Action
So, if equipment sensor technology is the booming sector, who is the high-quality supplier?
There are a few interesting ones to consider. I really like the cloud-platform, big data company GE is already using: Pivotal. This impressive company leverages big data better than any other company I've come across. It's perfectly positioned to take full advantage of the coming explosion in equipment sensor technology use.
While GE has invested over $100 million in Pivotal, the company is not open to investors right now.
That's okay. I'm keeping an eye on it, as well as on other candidates that might emerge as high-quality "DoubleX" suppliers in this and other booming (and about-to-boom) sectors. I'll be talking about some of them in future Early Investing articles.
For early investors, it's a sensible approach to investing at the intersection of booming sectors, startups and "moonshot" technology.
Good investing,
Andrew
Note: Andrew sheds light on an incredible opportunity... but not one that's open to ordinary investors. Or is it? A recent change in federal law is making it possible for regular people to invest in pre-IPO companies, which is where truly breathtaking profits can be made. A free subscription to Andrew's newsletter is the best way to get started. Just click here.
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