Cheapskate millionaires

“It’s here!” I shouted.

Never has a package caused such excitement upon its arrival to Southbank Investment Research HQ.

Excitement on my part, that is. The unlucky staff who’re forced to sit near my desk stared at me blankly.

On the desk in front of me was a fairly nondescript looking cardboard box. It had been stuck in customs for weeks. It’d been sent to the office from a small business in the US.

I opened it. The first thing I saw was a set of test tubes. Then a pipette. Small plastic jars for keeping medical samples came next.

As I unpacked the box, people started to pay attention.

More test tubes. Glass beakers. Small vials of carefully labelled chemicals. Actually, let me just show you exactly what was in there. Here’s a picture:

I’ll give you one guess as to what was in the box.

Here’s a few clues.

  • It contained a type of technology that’s been described as granting “God-like power” to humanity.
  • It cost roughly $150.
  • I bought it over the internet.

Any guesses? I’ll put you out of your misery. It was a home-gene editing kit.

I’ll pause here for a second to let those words sink in. Home. Gene. Editing.

Bought over the internet. For $150.

It’s a real-life example of the power of exponential growth trends. And its very existence is proof that exponential growth isn’t done changing the world yet. I’ll come back to this in a second.

I’m going to use it as a case study today, in an effort to convince you of a counter-intuitive idea about how to spot exponential growth opportunities. My theory is if you understand this idea you’ll have a much better shot of spotting the next big 100-bagging exponential growth trend. Let’s see if I’m right.

Getting this idea requires a paradigm shift in the way you think. Here’s why: say the words “exponential growth” to most people and what’s the first thing they think of?

My guess is it’d be something like this chart:

It’s the image that “defines” exponential growth for most people. It’s the way we’re taught to think about it. The long, steady grind followed by the explosive vertical leap higher.

It makes sense. This is the way exponential growth is usually represented. It also neatly describes the “narrative” of human progress.

That’s what the chart above really is. Ironically, it’s not actually one exponential growth trend at all. But it tells the story of accelerating growth.

But today I want to flip it. I want to talk its sister insight. It’s hidden right there in that chart. Accelerating growth comes hand in hand with collapsing costs.

That isn’t as sexy an idea. Instead of the vertical ramp up on the right-hand side of the chart (which in a financial sense makes us all think of accelerating profits), we get the vertiginous collapse downward.

We get a trend accelerating downwards, not up. But that’s critical. Why?

Because it is falling prices that creates huge commercial markets – not increasing speed. It’s just we’re conditioned to see bigger and faster as “good” and cheaper and smaller as “bad”. But that’s not the case.

Every great capitalist breakthrough led to low prices for the consumer. Lower prices lead to bigger, deeper markets. The faster prices fall the quicker the market will grow. Bigger markets create extraordinary profits for any business that can monopolise them.

To point out the obvious: accelerating growth and collapsing costs are two sides of the same coin. Computing processing power doubles roughly every two years. This means its cost halves in the same time.

I’m arguing that second statement is far more important when it comes to commercial success. It’s what leads to widespread adoption and mass markets. Put another way: the secret to tapping exponential growth opportunities is to find businesses driving the cost of their product down.

Making new technology cheap and accessible is what generates real fortunes. Not increasing power.

Back to my strange cardboard box. The very fact I can buy a rudimentary gene editing kit on the internet for a hundred quid should tell you something. It’s not designed for human gene editing I should point out. But it won’t be long before it is.

Wind those trends on. Extrapolate. Anticipate. Imagine a world in which gene editing technology can be acquired for less than £50 on the internet. It may send a shiver down your spine. Or it may not. But the trends in place today point towards that world…

Let’s take a step back from gene editing. How about just gene sequencing. Not changing your genes – just understanding them more fully. It’s a market that most people aren’t a “part” of yet. I’m guessing less than 1% of the people reading this email have had their genome sequenced.

But for how long?

How long before it’ll be the other way around – until 99% of people will have their genomes sequenced as a matter of course?

That is almost entirely a function of cost. Collapsing cost. The price has to fall hard and fast. That expands the size of the potential market. That in turn creates opportunity. 

The cost of sequencing genes is collapsing, by the way. Take a look at this chart:

It’s a chart that predicts the future, if you’re open to the idea. A future in which gene sequencing and editing becomes commonplace. Cheap. Easy. 

Most people aren’t open to that idea, as I’ve explained in previous essays this week. I know there are plenty of people reading this that will give that prediction the “Uh, yeah…” treatment.

But understand the dynamics of collapsing cost and you can see what’s coming. What put a phoneline in every home? A car on every drive? A computer at every desk? A smartphone in every pocket?

The history of capitalism is illuminated by entrepreneurs who made a killing by making products cheap and accessible to mass markets.

Cheap is good. Don’t forget that. Look for collapsing costs. They’re the real cornerstone of rapid wealth creation. Disagree? Write to me at [email protected].

More tomorrow…

Nick O’Connor
Publisher, Exponential Investor

Category: Genetics and Biotechnology

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