Pennsylvania Investment Observer

Technology Unfolding

by Daniel J. Nestlerode

In the past twenty or so years a number of major technological developments have radically changed human practices. Consider that twenty years ago the personal computer was essentially a toy for hobbyists and geeks. Bill Gates was far from becoming a household name. CDs were not disks loaded with music, but were certificates of deposit at your local bank. The Internet was beginning, but was the plaything of the military and some university people. There was no commercial Internet, no Ebay, no gigabyte hard drives, no computer chips operating at gigabyte speeds, no flat panel monitors, no stents for clogged arteries and no applications software to use in writing articles for the newspaper. Typewriters were more common than computer printers. Vinyl records, called LPs, were common as were eight track tapes and the beta max. Cell phones didn’t exist. Simply put, there have been a number of major category killer technological developments that have changed human behavior forever. Chips, windows operating systems, applications software, cell phones and the Internet are a few of these developments. We are now integrating these developments into the human culture. During the period these things were developed, the stock market surged by a factor of ten or more times. Now we have a different problem. There just doesn’t seem to be any major technologies ready to step up to the plate and lead the technology sector on another major advance.

As we digest the changes from the last twenty years, we seem to have entered a period of incremental improvements to existing technologies. Communication satellites now broadcast radio signals so we can have seamless radio in our vehicles on long trips. Cell phones are getting better and more reliable. Wireless technology will get better and allow us to connect to the Internet as easily as we call our friends and associates on our cell phones. GPS receivers are no longer the military’s game. On Star keeps track of you in your GM vehicle. Indeed, many commercial applications of the GPS technology are tracing nearly everything in a truck or ship. RFIDs (Radio Frequency Identification) are going to replace bar codes on products and allow us to better track and keep track of merchandise. Imagine checking out of the grocery store by pushing your cart through a checkout reader. Forget unloading your cart and reloading it to go to the parking lot. Communication is bound to get a lot cheaper as more telephone calls are routed over the Internet. Many goods and services are just getting better and cheaper. Just look at the productivity numbers. Because of the technological assistance developed over the past twenty years, we are now more productive than at any time in human history.

Yet with all the wonderful developments and surging productivity, the investment markets are faltering, looking for the next significant development that will catch the imagination of investors and send the markets substantially higher in price. Alas, none have identified such technology. It seems the big surge is over for now and we are left with a series of incremental improvements to technology that has already been discovered and commercialized. Such a development takes the froth from prices and helps lower the overall pricing of the stock market that can be measured by shrinking price to earnings ratios. We are still, four years after the peak in stock prices, coming back to earth and more usual valuations for equity prices despite very low interest rates, relatively tame inflation, climbing corporate sales & profits and even surging tax receipts at the federal and state levels of government.

Essentially, the technological surge that marked the years from 1987 to 2001 has cooled. These advances in technology seem to come in waves over the years. And they seem to be coming closer together in time. Nevertheless, they ebb and flow and we are now in the ebb of major technological developments.

So perhaps we will have less ground breaking technological developments and a lot more incremental improvements to existing products and services. While incremental improvements are less exciting than disruptive advances, they are a bit more predictable. So perhaps the future will become a little more knowable in advance, even if it is less exciting. And when the stock market gets back to some more reasonable valuation levels, it might just advance with the incrementally improving advances in technology.

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