Posted on November 8, 2012
Woody Allen once made a science fiction movie parody entitled Sleeper. His character is awakened two hundred years after being cryogenically frozen in 1973. Although initially groggy, once he becomes alert he happily comments, “You know, I bought Polaroid at seven. It must be up millions by now.”
Despite an early 1970s triple digit stock price and a CEO with a captivating personality later emulated by Steve Jobs, Polaroid Corporation went bankrupt in 2001. Along with a great many 1970s-era investors, Allen failed to realize that the chemical process of film imaging was near a technological dead end. In the rearview mirror, Polaroid’s fate should not have been a surprise as underscored by the amplifying evidence of Kodak’s demise a decade later.
The first rule of technology stock investing is to accurately identify the current state-of-the-art within the applicable industry’s life cycle. For example, in the 1970s Kodak and Polaroid could make picture taking incrementally more convenient, but film technology was unlikely to ever reduce the consumer’s cost-per-snapshot or provide the versatility promised by the future of digital photography. In contrast, it was simultaneously becoming evident that semiconductor integrated circuits were beginning to comply with Moore’s Law whereby the cost-per-function dropped by half every eighteen months. Furthermore, the underlying miniaturization processes to manufacture the chips could be repetitively improved thereby implying the Law would last for years, if not the decades that it has actually persisted. Read more…