Unicorns only exist in the tech space for a reason

“If the government told you to jump off a bridge, would you do it?”

I bet your parents never told you that version of the old reprimand…

Unfortunately for both of us, I’m an extremist libertarian. It means nobody likes me because I’m not fun to argue with. My answer to political questions is always the same. “Let people decide for themselves and don’t try to force others to do it your way by making a law about it”.

Gay marriage? The government shouldn’t make any laws on marriage at all.

Jay walking? People should cross the road wherever they like, at their own risk.

Quarantine during a pandemic? Let the virus sceptics test out the waters for those who are more cautious. The same on masks.

But even my very few libertarian friends do make the same mistake as everyone else when it comes to one crucial matter. It’s the topic of today’s Exponential Investor. Which should also reveal the type of investment opportunity you need to look out for as an exponential investor yourself.

Let’s reveal my idea with a rather prescient example.

What if the government’s lockdown isn’t why people aren’t going outside?

What if they’d be couped up at home even without the laws and enforcement we’re hearing so much about?

This chart from Google’s Mobility Data shows that people in different US states with different lockdown policies and timings for those policies behaved surprisingly similarly. Or unsurprisingly, if you already agree with me.

Source: Hugh Whelan, Twitter

In other words, it wasn’t each state’s lockdown which made people stay home. Something else did.

Pinning everything on the government is a pet peeve of mine. Doesn’t matter whether it’s a good or a bad thing that’s happening, people assume it was government driven or government responses that changed things.

Libertarians blame all bad things on government action. Everyone else blames a lack of government action for all the bad things.

Economic recoveries are because of stimulus and monetary policy. Unemployment went up or down because of government competence – “we created X thousand jobs” they say. Stocks go up because of Trump’s eruditeness on Twitter. Poverty falls because of welfare – a statistically impossible combination. The prospect of Brexit caused house prices to crash and unemployment to surge.

You get the idea – everything that happens happens because of the government.

Of course, the idea that people don’t jaywalk because it’s illegal is absurd. And not just because they do jaywalk.

If I were to say I oppose a compulsory lockdown, you’d argue with me about the merits of such distancing. But I’m all in favour of quarantining yourself. It’s only the compulsory bit that bothers me – what identifies libertarians as odd and annoying to argue with.

But to us, the idea that people actually do what the government tells them to because the government tells them to is hilarious. We believe people can do a better job of making choices for themselves than politicians can. If only because a one-size-fits-all approach is obviously a bad idea, but required under the law.

The Swedes are getting lambasted and praised about equally for their response to Covid-19. Or their lack of a response, I should say.

But it’s not their actual response that people focus on, is it? It’s the government’s policy. Actual compliance with that policy isn’t ever considered in the comparisons to other countries.

How did Swedes actually behave? Did they all go outside and snog each other because the government failed to stop them from doing so with a lockdown?

What if the Swedish lockdown was tighter than the Italian one in terms of actual behaviour, but not in terms of policy? Nobody will ever ask that question or measure that, even though it’s what really matters, not government policy.

I’m not comparing the law-abiding nature of Swedes and Italians, by the way. This is about the fact that people behave the way they do not just because the government tells them to, and often enough they behave that way despite what the government tells them to do.

Back to our real beat now. How does all this apply to investing?

The reason that tech investing works so well is very simple. Because it doesn’t suffer from the illusions and delusions I’ve just described.

Tech entrepreneurs are frequently libertarian for a reason. They don’t see government policy as a constraint and they focus on where there are no constraints.

Tech companies are ahead of government policy. They don’t care about what the law is, even when there is law covering their areas. They just innovate and look at how people actually behave and what they actually want, not at what the government prescribes.

Uber was ubiquitous before governments managed to get a grip on its collar for violating taxi licences. Airbnb was the same for hotel licences.

These companies didn’t care about hospitality or taxi law. They just gave people a way of doing what they wanted, government rules be damned.

These companies boomed before governments could impose policies on what’s permissible and what isn’t. By that time, they were powerful enough to buy their own politicians and become part of the problem. But that’s another story.

Of course, government policy is worth profiting from too. It’s even more predictable than the likes of tech trends. But that’s also another story for another day.

Ask yourself, which tech is pushing the boundaries that government hasn’t caught up on yet? Which tech evades governments or operates in areas the government hasn’t yet contained?

There are a few good examples.

Space tech, drone tech, cryptocurrencies, the sharing economy, the Internet of Things, personalised medicine, online retail, and logistics, for example.

In each of these areas, someone without any qualifications, licences, government approvals or any other constraints can dramatically affect how we do things using new technology that revolutionises the nature of the service being provided.

In areas like fintech and legal services, the extent of the revolution could be extraordinary with minimal government constraints.

In such industries, the potential for exponential growth is far more likely because of the lack of this constraint. Unicorns – billion-dollar companies that pop up out of nowhere – are real in the tech word. And investors can make far more there than in government-controlled industries where innovation has been stifled by rules that only suit existing ways of doing things.

In other industries, the government has already clamped down. Innovation brushes up against rules at every turn it wants to take.

When you’re investing, it pays to think like a libertarian and look for libertarian business models. Even if you don’t like us…

Nick Hubble
Editor, Southbank Investment Research

Category: Genetics and Biotechnology

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