What containerization and blockchain teach us about innovation and investing

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“We strive to live at the intersection where new ideas can make great long-term investments.” This quote remains as relevant today as it was when we first published it in 2018. I like it because it says something complex, simply. It supports active management and also implies an absence.

Certainly, we look to invest in companies that implement new ideas that yield great long-term returns. However, on the other side of the same coin, we find it equally important to avoid investments in technologies that are changing the world, but in fact, do not yield a meaningful return over the long term. We are often asked this in the form of a question, but not in the framework I just outlined. Instead, it comes with questions such as, “What do you think about 3-D printing?” or “What do you think of Linux?” or “De-Fi?” or the most common one recently, “What do you think of blockchain?” When I try to explain that these may be wonderful tech­nologies but might not make great equity investments,¹ I feel that the answer leaves the questioner a bit—well—disappointed.

In this paper, we draw a historical analogy of intermodal containerization and compare it to another technology we think could change the world but may not make a great investment: blockchain. We chose these two innovations because they are likely the most impactful examples of this phenomenon in the 20th and 21st centuries (so far) respectively. Of course, when speaking of the future, all caveats apply. Our mind is always open to new ideas and updating previous ideas in response to new evidence. We are humble. We are not dogmatic. We are rational. In writing this paper, we hope to satisfy some of the questioners who, over the years, may have left feeling a bit confused by our lack of enthusiasm for some of the popular technologies in the press.

Identifying these new technologies and their monetization potential is relevant. When investing in innovation, failing fast is important. It is certainly true that what we do own drives investment performance more than what we do not own; however, it is also important to avoid the shiny objects along the way that can be tempting but ultimately empty. The story of disruptive technologies teaches us that great ideas take time to find their most impactful business model. It is also common that the mismatch between sentiment and monetization can be wide. Nevertheless, history also proves that innovation regardless of its monetization, will continue to transform our society and economy. We hope you enjoy the paper.

Key takeaways

• Disruptive technologies follow a hype cycle, which is a reminder that world-changing ideas need time to realize their most impactful business model.
• Shipping container innovation revolutionized global trade through its simple operational efficiency. Massively deflated shipping costs brought about by containerization, while disruptive to the industry, benefited the entire world.
• Containerization shows how a new idea can create significant value for society (by reducing the friction of global trade) even if there is no lasting “pure play” investment in container innovations.
• Blockchain may change the world, but the technology has failed to provide investment opportunities commensurate with its impact, much like history demonstrated with containerization.

Read the full paper to learn more.