Does potential for Growth = Return on investments?

How often do we hear "this is the next best investment" Or "This is the future"

I sure am excited to see how different the world will be and how our lives will change in the next 10, 20 years.

Wow I can't imagine how the world will be like but surely it sparks our curious minds doesn't it? What more if we spot a new trend, that means we can also benefit from investing in these areas right?

RIGHT? …

The world has certainly changed in the past decades.

Can you imagine living without cars, busses, the internet, computers, microchips for our phones, devices etc… ?

Motors, Semi-conductors and the internet have completely impacted human lives compared to 20, 30, 50 years ago. However, was it a_ smooth and steady journey all the way?

How often do we hear "Invest in this now before it's too late" or "This will 10x your money in 3 years"?

Let's take a look at the history of 3 events, some lessons we could learn and insights from Mohnish Pabrai when investors had similar mindsets.

1. Motors

The ideology and proposal of success in innovation in the motors industry was right! Population and industralisation indeed did grow, cars and vehicles truly are a big part of our lives now. Yet the market crashed and many people lost their investments. How can this be? The Dow Jones fell over 45% from it's high in late 1919. Many of the companies in the Motor industry are non-existent today.

This is a list of Motors company, just those starting with "M-A", that went bust shown by Warren Buffett in this year's annual shareholder's meeting.

Investors were indeed investing in the future, the motors industry had huge growth potential. Yet many companies did not survive long enough to reap harvest of it's time.

2. Semi-Conductors

Semi-conductors are booming in today's market. Crypto mining, E-sports, Smartphones, cloud computing etc…

They certainly are everywhere! Amazing how much AMD, NVDA, TSM and other semi-conductors have grown.

Certainly people were right in the past! Wait a minute, how did so many investors lose money in semi-conductors?

Once again, Investors were indeed investing in the future, the Semi-conductors industry had huge growth potential. Investors were right, the industry would make a huge difference to the world. Yet many companies did not survive long enough to reap harvest of it's time.

3. The Internet

Do we have to mention the internet? I don't think I can live without it.

"If you invested in AMZN back when it IPO you would have become a millionaire!!"

How many times have we heard ads like these? Yet they don't remind you it also meant you have to hold on, in faith, to your position as AMZN went down 94.5% during the Dotcom Bubble.

Not to mention the number of companies that went bust during that period.

(Note: many of these were backed up or bought by bigger and more successful corporations.)

Once again, Investors were indeed investing in the future, the Internet and technology sector had huge growth potential. Investors were right, the Technology boom would make a huge difference to the world. Yet many companies did not survive long enough to reap harvest of it's time.

Lessons learnt?

The 3 bubbles taught Mohnish Pabrai that...

1. Being an early investor can be richly rewarding, but also cuts deep if you were invested in the wrong companies.

2. Even the best companies may experience huge initial drawdowns before experiencing it's growth. You got to be in it for the ride! Think Long term

3. The industry/sector may boom as a whole, but not every individual company may live long enough to experience that growth.

Conclusion:

I am not here to say that you will lose/make money investing in what's deemed to be the "future". For you and I may very well be richly rewarded in the long run for being early investors. However, that may mean being prepared for possible huge drawdowns before harvest.

This article was to share some patterns and lessons learnt by Mohnish Pabrai in history from just 3 bubbles and for us to ask ourselves how much we understand about where we put our money to.

It is also a good reminder to think of possible scenarios and how can we stick to our investment plans and be long term investors, or will any particular situation cause us to react in panic and fear? If so, what would be do with that knowledge?

Disclaimer Lessons learnt are not meant to be taken as financial advise, instead keeping an open mind may allow us to learn and check on our own decisions.

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References:

Mohnish Pabrai interview at Boston college 2015

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Berkshire Hathaway 2021 Annual Shareholder's meeting