Investing Strategies (2)

It is often tempting to sink hard earned cash into companies developing new technologies, clean technologies, or whatever the current rage - or bubble - may be. The long and inglorious pantheon of failed companies in new industries - railroads, electricity, automobiles, aviation, computer hardware and software, energy, biotechnology and many others - should be a lesson to us all.

There are many companies with great stories, no earnings, and few prospects. In times, however, when irrational exuberance and self delusion rule, there is no shortage of punters willing to take a chance on the start up or, worse, the overpriced IPO. Most of these gamblers - it is hard to describe them as investors - will lose the greater part of their money. A few, very few, will prosper because the company is one of the small minority of great successes (Microsoft, Google) with a real product or service and a business model that effectively turns its insights and ideas into cash.

A wise old investment banker, known to your correspondent, once listened patiently to a young technology inventor and then got directly to the point: "how are we going to turn this neat idea into boxcar sized piles of cash?' Since there was no good answer, there was, sensibly, no investment.

Those with a gargantuan appetite for risk, and the ability to place many bets, are welcome to try their luck. These are Venture Capitalists and Angel Investors. Overall, if they know what they are doing, they make money but only because there are a few grand successes to make up for the losses on almost everything else.

We hear much about the successes but little of the hundreds of failures. To refrain from venturing into the swamp of new technology is likely, then, to be the wiser course. As 19th century steel man and 'Robber Baron' Andrew Carnegie put it:

"Pioneering don't pay."

Those are three magic words that will preserve much wealth for the average investor.