Editor’s Note: In today’s “can’t miss” interview, we caught up with veteran tech entrepreneur and investor Jeff Brown to talk about why he believes there’s never been a better time to invest in tech stocks… the specific areas he’s tracking right now… and his proprietary three-pronged strategy for identifying tech companies with the potential to make exponential gains.
Chris Lowe (CL): Jeff, you’re the latest addition to the Bonner & Partners team. We’re all very excited about Exponential Tech Investor, the technology investment advisory you’re about to launch How did you first get interested in technology?
Jeff Brown (JB): Since I was a child, I was fascinated with space and space exploration. I wanted to be an astronaut. So, I gravitated toward math, science, and engineering. And I earned my B.S. degree in aeronautical and astronautical engineering.
I have never given up on my dream of going to space. I will still make it as a civilian passenger. I am more optimistic than ever about the potential of the commercial space industry. You won’t believe the things we will be doing just 10 years from now.
But already, so many exciting things have happened. If I had to point to one, I would say it was the Ansari X Prize. The X Prize Foundation, which runs competitions designed to encourage technological development for the benefit of humanity, offered $10 million to the first nonprofit organization to fly two suborbital flights of at least 62 miles in altitude within a two-week period.
In 2004, a tiny venture called Scaled Composites did it in one week. It disproved the idea that space travel could only be accomplished by big governments.
CL: What was your first job in technology?
JB: My timing wasn’t great when I graduated. The aerospace industry was going through a major downturn. But I was so determined to work in the industry that I got in the car and drove from Pennsylvania to Seattle, where Boeing is based, without a place to stay or a job.
I managed to get a position as a contractor supporting project work for the early stages of the Boeing 777 project. I was just out of school with no experience. So, I was thrilled to be at an iconic company such as Boeing and be able to visit the factory floor every day.
After that, I joined a company called General Instrument. It was the world’s leader in cable TV network technology. I joined around the time that old analog networks were being upgraded to digital. That’s how I got involved in communications.
CL: So what are some of the big trends you’ve been watching in communications space?
JB: The really big trend has got to be the push into mobile and wireless networks.
Many people have heard about “Moore’s law.” Back in 1965, Gordon Moore, the founder of Intel, observed that the number of transistors in microprocessors – and therefore their processing power – doubles roughly every 18 months.
But almost no one has heard of Cooper’s Law of Spectral Efficiency – named after an American engineer, Marty Cooper, who led the team at Motorola that produced the first handheld mobile phone in the early 1980s. It states that the amount of data transactions over all of the useful radio spectrum doubles every 30 months. That has brought about a profound shift in the way we all communicate. And of course, it’s led to big profit breakthroughs for the likes of Apple and Samsung.
CL: You’ve spent the last two decades living and working in international markets. You’re now based in Tokyo. What advantages do you think that gives you as a tech investor? Silicon Valley is in the U.S. Wouldn’t you be better off living in California?
JB: I have worked for, and with, Silicon Valley firms for the last 20 years or so. I am in the Bay Area three to six times a year. And I’m in touch with my network of contacts there almost every week.
But my time spent living and working outside of the U.S. has provided extraordinary context and perspective.
Japan, where I am now based, is an incredibly interesting place to live for a tech geek like me. I was walking around with a cellphone small enough to conceal in my fist… in 1998. That kind of technology wasn’t available in the U.S. until much later.
Also, Japan widely deployed contactless payment technology throughout its public transport systems in the early 2000s. The U.S. is only now rolling that kind of technology out on platforms such as Apple Pay.
In many ways, Japan is years ahead of the rest of the world in terms of technology adoption and service implementation. I am able to see the future on my doorstep every day.
CL: You say that, over the next 10 years, advances in technology will dwarf the progress we’ve seen since the great tech revolution that began in the late 1990s. What areas are you most interested in?
JB: There are so many exciting areas right now. But robotics and artificial intelligence (AI) are two I’ll be tracking closely at Exponential Tech Investor – everything from factory automation to surgical robotics to AI personal assistants.
What’s so exciting about these fields is that they are still early in the adoption cycle… and things are speeding up. And that’s when investors can make the really big profits.
Take Intuitive Surgical (NASDAQ:ISRG), a pioneer in surgical robotics. In 2004, this was a $16 stock. Today, shares trade at $516 – a 3,125% gain. That’s a compound annual growth rate of about 37%. And this is still a high-growth company.
And with AI, big hitters such as Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN) are all investing heavily in personal AI technology.
It won’t be long before your personal AI will be able to take care of the vast majority of menial tasks, such as scheduling meetings, reading and responding to routine emails… even buying and sending flowers on your behalf. I can’t wait for that day. It will free up so much of my time for more productive pursuits.
Another area I’ll be tracking closely is what I refer to as the “3-D Internet,” also known as the Internet of Things.
Today, there are about 50 billion sensors connected to the Web. They are in smartphones, tablets, fitness and health monitors… they are even embedded in clothing.
Take Fitbit. It makes health and fitness “wearables.” You’ve probably seen people out jogging with one of the company’s bracelets around their wrists. These track everything from how many paces someone has run… to their heart rate… to how many calories they’ve burned.
Fitbit had its first round of funding in 2008. It raised $2 million for a total valuation of about $8-10 million. The company went public in June and is now worth more than $5 billion. And it generates more than $1.5 billion in annual sales.
But this is just the start. By 2020, we will have 1 trillion connected sensors deployed around the world – all collecting data that can be analyzed and monetized.
This is an industry that I expect will create tremendous opportunities for investors.
CL: Your new advisory is called Exponential Tech Investor. Why “exponential”? What’s so important about exponential change?
JB: The main characteristic of exponential growth is that you get doubling (or in the case of costs, halving) over a relatively short time. When a technology consistently improves by doubling, it brings about tremendous change.
In the early stages of exponential growth – say, the first 20 doublings – the change isn’t dramatic at all. But when you get to the 25th or 26th doubling, you reach the “elbow” in the exponential curve. You can recognize exponential growth on a chart because it looks a lot like a hockey stick lying on its side. That is the point at which each doubling brings about radical improvements in the underlying technology.
Our timing with the launch of the new letter couldn’t be better.Since the very first microprocessors, we have had roughly 28 doublings in processing power. This means we have now passed the “elbow” and are climbing the vertical part of the exponential curve. Every doubling from here will be extraordinary in terms of what technologies it will enable.
CL: What are the things you look for in companies with the potential to make exponential changes?
JB: I use three proprietary indicators, which I call the Enabler Indicator, the Momentum Indicator, and the Disruption Indicator.
The Enabler Indicator is the use and application of exponential technology, as a foundation for a new product or service. A classic example is what happened in traffic-sensing technology.
Cellphone maker Nokia spent $8.1 billion to buy a company called Navteq. It had an extensive physical network of road traffic sensors. And Nokia reckoned that if it controlled that network it would be able to dominate mobile mapping and traffic information.
But then a start-up called Waze built an app for smartphones that “crowd-sourced” users’ locations and local traffic information. Waze had no physical infrastructure. It was using the advanced technologies contained within the smartphone to deliver a service of immense value.
Waze grew exponentially as a result. In less than four years it had more than 10 times as many sources for traffic than Navteq had after spending billions on network infrastructure buildout.
Nokia’s acquisition of Navteq failed. Why? Navteq used “old-school” linear technology and business models. Waze used exponential technology and business models.
My Momentum Indicator is all about timing…
There are two great windows for investing in tech companies. The first is when the technology is new, shows tremendous promise, and the market doesn’t completely understand how to value it. This is when you will see large run-ups in valuations and stock prices.
But after the hype dies down and the market has a better understanding about the time it takes to adoption, you will typically see valuations fall. That’s when the second great window for investment opens. This is when the technology is ready for widespread adoption and accelerated growth takes place.
Three-dimensional printing (or additive manufacturing) is a great example. It had a huge run-up built on the hype of a 3-D printer in everyone’s home. But the hype was well ahead of reality. There are still some aspects of the technology that need to be improved – for example, how long it takes to “print” something.
Three-dimensional printing stocks have fallen out of favor as a result. But I expect the second investment window to open within the next 18 months… something I’ll be alerting my Exponential Tech Investor readers to when it happens.
Finally, my Disruption Indicator is all about new products or services disrupting entrenched or legacy industries. Just think about how ride-sharing app Uber disrupted the taxi industry… or how home-rental site Airbnb disrupted the hotel industry.
Now, think of all the other industries that are still functioning more or less as they did 30 years ago. Tech disruption is just getting started!
CL: Aren’t technology stocks risky? Didn’t the dot-com bubble burst and take down with it millions of unsuspecting investors? Why should it be any different this time around?
JB: It’s a great question. I’m glad you asked. There does tend to be a lot of volatility in the technology sector – especially in the smaller-cap companies.
But remember, risk and reward are inextricably connected. If you want the opportunity to achieve truly life-changing returns, you have to shoulder more risk. If you want safety, you’ll have to content yourself with meager rewards. At Exponential Tech Investor I’ll be aiming to deliver game-changing returns.
If you know what you’re doing… and you have the right contacts in the industry, as I do… you can find stocks that compound every year by 20%, 30%… 40%. Those are the type of stocks I’ve more than doubled my money on in the past. And they’re the type of stocks I’ll be recommending to readers.
When I think back to the dot-com bubble, I am glad that we got that out of our system. There was so much speculation and hype it was hard to value anything.
But there is no comparison between then and now. For a start, we are nowhere near the valuations that existed back in 2000. In fact, we are at almost half of the peak in terms of price-to-earnings ratios.
The other thing that few people realize is that the rate of innovation right now is dramatically faster than it was in 2000. Back then, it cost $5 million to create an Internet company and deliver a first product. Today, it costs $5,000.
CL: What’s your No. 1 idea right now? If you had just one investment to make for the next decade, what would it be?
JB: If I could invest in a single concept or idea over the next 10 years it would definitely be machine learning.
Machine learning allows an AI to learn from its experience. It can also learn from humans who provide examples on how to solve problems. What makes the concept so powerful is that an AI doesn’t forget.
Even better, an individual AI can share its learning with all other AIs in a network – instantly. The speed at which an AI can learn makes Moore’s law look slow by comparison. We will have human-level intelligence in less than 10 years as a result, and along the way many fortunes will be made.
