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Why must a stock investor know about technology?

Every Non-resident Pakistani (NRP) must know how to invest in their home country. There is a lot of literature available on "How to invest in Pakistan stock exchange?". 

Pakistan stock exchange is often referred to as PSX Pakistan or PSX in short form, meaning the capital markets through which any citizen or NRP can invest in PSX stocks in their home country. However, once you are ready to invest there are some things you must know about the rapid technological changes that are happening in the global business environment. These global factors affect the business environment in every country including Pakistan.

So, let's look at the changes that we are talking about one by one.

Impact of technology

Business enterprises survive on challenges thrown open in the marketplace. Technological changes create a plethora of challenges that are actually opportunities in disguise. Smart entrepreneurs are able to identify and capitalize on them at the right time. As intelligent stock investors, we must learn to perceive these changes, especially how technology shapes our world. Let us first look at the Personal Computer (PC) era.

The PC era

Each decade of technological shifts ushered in great opportunities for smart entrepreneurs and wise investors. In the 1980s Steve Jobs launched Apple Macintosh PC, which was expensive and could not gain a huge market share. In the 90’s decade, Bill Gates introduced the Windows operating system to the world making it easy for a layperson to use a PC. It was marketed more widely and became hugely popular across the world with almost every PC being installed with a Windows operating system. 

Microsoft became a world-class company and made the founder the wealthiest man on earth. Another remarkable company that was driving the PC revolution alongside Microsoft was Intel Corporation. As years passed by Intel microprocessors became smaller and even more powerful than before. Around this same time during the 90s people widely adopted the use of the internet.

The rise of internet

Internet became highly popular in the 90s as more and more people could access the internet through their own PC's or one available at cybercafés charged at an hourly basis. The adoption of the PC and internet by many people encouraged young entrepreneurs to start their new business ventures. For example, Yahoo, Google and Amazon were the internet companies which launched their businesses during this period. 

These same companies went on to become massive billion-dollar companies in the years to come. So, changes in technologies do throw up opportunities in the guise of challenges for enterprising minds who make the best of it. Another business application that rose on the arrival of the internet was email.

Also Read: What is the Pakistan Stock Exchange?

The effect of communication through email

A budding entrepreneur Sabeer Bhatia sensed the business opportunity for making communications via email. He created a company called ‘Hotmail’ which enabled sending emails across the internet. The concept of email was new and became an instant hit as it shortened the time to do business communication. Anyone could create an id in their own name without necessarily being associated with any company or business. 

Sabeer Bhatia sold his company to Microsoft for purportedly 350 million US dollars. The rise of email led to the decline of postal services like letters and telegrams. Most postal services were owned by governments, so there were no actual business bankruptcies. However, the government bodies did experience significant losses. Meanwhile, the private sector saw significant growth with the rise of new internet companies.

The dotcom boom

The internet made possible many new business applications that allowed young entrepreneurs to create their own businesses with ease. Young businesses could have an online presence by creating their online portals or websites in no time. As so many people started their own online companies during this phase, it came to be regarded as a "dotcom" boom. However, scores of new internet companies started failing at a rapid speed. Most companies could not survive the test of time. 

Exceptions like Google, Amazon, Netflix and others not just survived but thrived. For instance, Jeff Bezos the founder of Amazon saw great potential in starting out as an online bookstore. Barnes and Noble, the biggest brick-and-mortar bookstore during those days did not pay much attention to the new kid on the block. However, today Barnes and Noble has been suffering heavy losses and is ready to be sold off and Amazon has become a trillion-dollar company. Meanwhile, similar stories were being unfolded in other areas too.

The rise in communication technology

The 90's decade also saw a significant rise in mobile communication technology. The rapid technological changes during this period created fortunes for many telecom companies. For example, companies like Nokia, Motorola and Erickson became so popular that soon everyone was carrying a mobile phone in their hands. 

However, as these mobile phones ran on Symbian technology, new technological inventions made them obsolete in a decade or so. Nokia, which was at one time a household name found the going tough. The company's massive size became its biggest disadvantage as it became difficult for it to adjust itself to the all-new smartphone era which soon captured the imagination of the masses.

The smartphone revolution

The biggest achievement of smartphone technology was that it could fit a tiny yet significantly powerful microprocessor into something as small as a mobile phone. This business potential was identified clearly by the Apple team. So, Apple's founder Steve Jobs introduced iPhone putting a microprocessor inside a phone and completely changed the fortunes of many companies as iPhone could now do many things than just phone calling. 

Prior to introducing iPhone, Steve Jobs introduced iPod which completely swept away the audiotape and CD industry. The smartphone revolution caused largescale disruptions not only across many companies but also across multiple sectors and industries. 

Business disruptions across the board

Business disruptions mean that the advent of new technologies makes companies using outdated technologies go out of business. The beneficiary in this case is the company with the most recent technology. The smartphone revolution caused significant disruptions across various companies, sectors, and industries. 

Also Read: Why Invest In Pakistan Stock Exchange And The Mindset Needed?

Mobile telephony

Mobile phones became smartphones and the businesses that could not make that transition failed miserably. For instance, Nokia the erstwhile giant in mobile telephony was left behind in the race and could not recover from its losses. 

Microprocessors and chipsets

Companies that did not see the smartphone revolution coming also lost out on a brilliant opportunity. For instance, Intel which made microprocessors lost the smartphone growth opportunity by failing to understand its vast future potential. 

Audio industry

The way people consumed music went through a sea change from audiotapes to DVD's and MP3 music formats. For example, Apple's iTunes disrupted the audio music industry by changing the economics of music distribution through its iPod and iPhone devices.

Photo films and photography

The rapid digitalization of photography completely wiped off the photo film industry. The use of a mobile phone to click and share photos rendered the need for a separate camera completely useless. For instance, Kodak was an extremely successful multi-million-dollar company till then, but the technology shifts led it to bankruptcy. The camera companies which failed to adapt to the new digital world also suffered a similar fate.

On cloud nine

The shifts in technologies pose significant challenges to businesses that are unable to see the changes and adapt to them. The bigger a company more difficult it is for them to adapt to the changes. Microsoft went through a similar low phase when its dominance through its Windows operating system became shaky. However, the company sensed the danger and made a quick change in the leadership from Steve Balmer (a marketing stalwart) to Satya Nadella (a technology whiz-kid). Nadella used his tech knowledge and skills to reshape Microsoft into a cloud computing trillion-dollar behemoth.

Social media and the connection economy

Alongside the smartphone revolution new companies started creating new businesses that harnessed the human habit of staying connected. These companies got rapid acceptance from the masses as it became extremely convenient to remain linked to your network of friends, family, colleagues and acquaintances. Mark Zuckerberg, the founder of Facebook Inc. was the chief architect of bringing about the social media revolution. The other notable companies were Twitter, LinkedIn, Instagram and WhatsApp to name a few. The network of connections also created a connection economy which created new business opportunities in mobility, delivery, and logistics to name a few.

Data is the new oil

The new technologies involved keeping the data in centralized locations called Data Centers. Every major technology company now has huge data centers storing millions of gigabytes of data in these centers. Data has become the most critical element of these businesses as these businesses create massive quantities of data every second. Businesses then use the skills of Data Scientists who analyze this data and help businesses stay ahead of their competition. The use of Data Analytics has become an essential element for every industry that wants to compete and hence Data is said to have become the new oil as data analyzed accurately can be as precious as oil if not more.

Future technologies

The future looks exciting for the technology field as many technologies which are currently being used are yet to grow to their full potential. For instance, Artificial Intelligence (AI) and Machine Learning technology use computers to do basic repetitive tasks leaving more time for humans to do more creative and valuable work. Virtual Reality (VR) and Augmented Reality (AR) are already in use but hold a lot of promise for the future. Likewise, Blockchain which is the technology underlying cryptocurrencies has significantly more business applications that will further change the way we conduct business and live our lives.

Conclusion

In conclusion, we could say that every technological change brings with it huge opportunities. It also creates considerable risks for those companies who are caught unprepared for the change like the companies described earlier in this article. A wise stock investor would be prepared to bet on the right technology at the right time so as to make the best of the growth of that company or business. They have to keep themselves well informed to benefit from the shifts that shape the future of businesses and change their fortunes. It will also be useful to know when to divest your holding in a business when you see that it has saturated and there is no more growth possible. When you make investment decisions based on proper scanning and reading of the environment it is very likely to pay you off well in the long run.