Bull markets are born in scepticism. They die in rampant gullibility.
That’s why it’s often tricky to spot the “next big thing”. Because the “next big thing” starts out as a small thing.
And there are often lots of very good reasons to be sceptical.
The internet? Who wants it? We have phones. You don’t need to type on a phone.
Shale oil? Never work. Too expensive. Too hard to get out of the ground. And whatever you do find will be sucked out in five minutes – like champagne out of a bottle.
The naysayers start off sounding wise. By the end, they just sound bitter – assuming they haven’t long since joined the party.
By that point, people will believe almost anything. Everyone’s drunk on promises of riches and giddy optimism.
Yes! The world needs a unique dedicated online delivery service for every individual feasible consumer product. Yes! Oil production can go as high as we like, and Opec will still keep prices above $100 a barrel.
Then someone throws up in the punch bowl, and the headaches begin.
But it’s fun while it lasts. So where’s the next big thing?
The next big thing – it’s robots of course
Robots. They’re the next big thing.
Robotics is hardly new. We’ve been hearing about how they’re going to annihilate employment for years and years now. The FT has another big report out on them today.
And it’s not particularly controversial to imagine that robotics is likely to be one of the next “big” sectors – one of those ones we’ll end up looking back on at some point and say: “Wow, that was a bubble and a half. But look at what it brought us.”
Here we have a potentially extremely capital-intensive industry on the verge of turning mainstream, with a hugely exciting story and lots of megalomaniacal predictions about how it’s going to change everything.
It promises to make fortunes for people who happen to get in at the right time. Those who get in early could make even more. Meanwhile there are piles of cheap money lying around, just looking for somewhere to invest.
Marry those two together – a great story and cheap money – and you’ve got the classic recipe for boom and bust.
We’ve seen it countless times before. The dotcom boom. The commodities gold rush. The shale oil revolution. Money chases a great story. Some of it makes great returns. Lots of it gets burned on a pyre of irrational exuberance and executive excess. And in the process we establish the infrastructure for a major shift in the way that we do things.
Robotics will be no different.
Robot companies and junior miners
But the truth is that, despite the promise, robotics has never been all that easy to invest in. There are a few good, long-established companies, but finding a way in – a roadmap towards the automated future of endless leisure (or the dystopian hellhole of mechanised killing machines and hills of crushed skulls, depending on your favoured mindset) – has never been entirely clear.
But now the mist is starting to clear. The next wave – the thing that gets investors’ juices really flowing and starts the grand process of rampant capital misallocation that makes for a really, really wonderful bubble – is going to be based on a specific sub-story of robotics. And that’s artificial intelligence (AI).
The old era was factory robots. But AI is all about making robots adaptable and capable of a much wider range of tasks as they learn on the job. We’re talking about a world of drones and robots that work alongside humans, rather than big dangerous machines that are sealed away from them, as with an assembly line.
The rush is already beginning. Apparently, the US is already the biggest investor in AI, reports the FT. That is “giving the US an early advantage in the race to dominate a new era of robotics”.
As a result of this investment and switch in focus, both America and China are “poised to take the lead from Japan and Germany, which dominate traditional industrial robotics”.
The cost of setting up as a robotics company is also falling all the time. Robots don’t all need to be mega-machines that cost fortunes to make. All you need is software and sensors. It’s ultimately all about data mining and processing.
I suspect that you can think of a lot of the new robotics companies as being a little like mining explorers – small companies with little more than a big sexy story and a plan to dig for data in a particularly promising spot.
And as in all booms, these little story stocks will be lifted up on a rising tide of cash that will become ever less discriminating as the excitement builds.
Will it rival the dotcom days? I suspect so. And that’s a bubble that I for one would like to participate in for at least a little bit of the upside.