If you walked into a broker's office (they still had offices then) in 1976 and asked about investing in new technology, you likely would have been pointed toward some big cap stocks.
The broker wasn't stupid. That's because he knew that change was a top-down process. The military industrial complex had funded the first computer, the development of semiconductors, even integrated circuits. The Apollo program was, like Vietnam, a Cold War activity.
We know now that, from an investor's standpoint, that was the wrong way to think. I was in college then and saw clearly that change was becoming entrepreneurial. Kids my own age were taking the tools of their time and running with them. The winners wound up being start-ups like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Internet companies (NASDAQ:GOOG) (NASDAQ:GOOGL) whose founders had just been born. The big boys, meanwhile, fell behind because they were bureaucratic and didn't move toward the future quickly enough.
That's the way we think of change now. We see change as a bottom-up process. We see government as an enemy of change.
The future today is represented by ideas like the Internet of Things, or the editing of DNA. We expect some entrepreneur to come along and make them pay. That is the conventional wisdom in Silicon Valley, which in the last 40 years has become the dominant economic center of our time. Thus, young investors are being told to shy away from big companies for fear they may become the next Digital Equipment, whose CEO infamously said in 1977 "There is no reason for any individual to have a computer in his home."
But I think they may be wrong again. Making the Internet of Things work takes enormous cooperation, among companies that don't want to cooperate. Cats must be herded. Getting any biotech product into the market also has to require, at least, government acquiescence to break through political resistance. Government is going to be both a big buyer, and a gatekeeper, for the technological revolutions now underway.
The idea that government can do nothing but wrong should also be subject to question. Consider the Cancer Moonshot, which has forced companies to cooperate on intellectual property issues in the name of accelerating cures. It has gotten results.
What government forced on companies in the 1950s was a mission-oriented attitude. It was done in the name of liberalism, and created a generation of Republicans, men like David Packard and Gordon Moore. Companies then were less devoted to shareholders or even employees, and more to getting the job done, as in Ron Howard's Apollo 13. Everybody dressed in button-up shirts and ties and no one asked what was in this for them.
Today this is derided as "industrial policy," as "the government picking winners and losers," but the fact is that, once these government-backed innovations were released to the market, they created enormous value. The top-down and bottom-up eras even overlapped. The Internet you're using now was government funded, and government controlled, until the early 1990s. During my first decade as a reporter you needed to have a good reason to get access to it, preferably a military contract.
Change, and growth, can be both a top-down and a bottom-up process. Both approaches have their advantages. The top-down approach leads to standards, it leads to a mission-oriented approach, and it can get a man on the Moon. The bottom-up approach creates personal wealth and it can put a supercomputer in the palm of your hand.
We may be entering a time where more of the top-down approach is needed. To cure cancer, to create smart infrastructure, and to build the Internet of Things, we may need someone to be in in charge, and scaled bureaucracies to manage the process rather than a helter-skelter of entrepreneurs.
What this says to the still-young investor inside me is that maybe you should buy General Electric (NYSE:GE), Honeywell (NYSE:HON), and sell things like Theranos (THER) and Tesla (NASDAQ:TSLA). Maybe the big biotechs of the future already exist in companies like Illumina (NASDAQ:ILMN) and Regeneron (NASDAQ:REGN).
Change, and the process of change, must sometimes change, too.
Disclosure: I am/we are long AAPL, GE, GOOGL, INTC, MSFT.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.