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How to make investment decisions that are future-proofed?

Published 26 May 2021

If you walked out your front door and took 30 ‘exponential’ steps, let’s say west, where would you land? Would you be in NSW? In Perth? South America? You would, in fact, travel 26 times around the planet. Not only is this mind blowing, it’s actually hard to believe.

This simple anecdote illustrates the power of ‘exponential’ to drive explosive growth.
Exponential growth may sound scientific, but it is a simple doubling, that is, 1, 2, 4, 8, 16, 32 and so on.

At Holon, our investment philosophy is focused on winning in a world where investments have moved from ‘local and linear’ to ‘global and exponential’.

We use a thinking model called the 6Ds, created by Peter Diamondis, founder of Singularity University to track and measure the exponential growth of our investment decisions.

If, as an investor, you can understand and adopt the 6Ds framework, you will better understand this new world of ‘global and exponential’ and the forces fueling innovation that is leading to unprecedented disruption. You will understand why existing business models — such as Australia’s big 4 banks — are under serious threat from disruption.

And you will find it easier to track where a technology or innovation is heading, get on board innovation trends earlier (reaping larger profits), make smarter investment decisions, and ultimately future-proof your portfolio and wealth creation.

The two types of business models

The world is now divided into two types of businesses: ‘old world’ and ‘new world’.

Last century’s old world organisations needed to be big to be global with many people in many big offices. They took years in ‘waterfall style’ — steady and sequential — development to bring products to market.

But today, with the power of computing, the cloud and mobile tech, new world businesses can expand at near zero marginal cost, overnight, and be global.

“Instead of thousands of employees and large physical plants, modern start-ups are small organizations focused on information technologies. They dematerialize what was once physical and create new products and revenue streams in months, sometimes weeks. It no longer takes a huge corporation to have a huge impact.” Peter Diamondis

COVID has accelerated the transformation to new world businesses, which are digitally enabled and global. They are the ‘global and exponential’ platforms we live and work on today (Zoom, Amazon, Netflix, Afterpay) and that continue to deliver huge profits and returns.

‘Local and linear’ old-world businesses — that often form the bulk of many Australian’s investment portfolios — face serious disruption if they are incapable or unwilling to transform. Kodak is an infamous example. Kodak invented the digital camera but the leadership team didn’t have the risk appetite to take the digital camera to market and disrupt their existing, profitable product lines.

Australia’s local banks are ripe for this disruption. They were designed last century with bricks and mortar presence, and are now crippled by ever-increasing risk and compliance overheads. The banks tell us they are modern, but other than online banking, what product or service innovation has any incumbent bank delivered this century?

How to tell which model your investment fits?

So if you are to navigate — and profit from — this unprecedented technological change, the shift to ‘global and exponential’, you need to ask a simple question: is an investment an ‘old world’ or new world business?

But how do you decide if a business is old or new world?

There is a powerful yet simple thinking model — called the 6Ds — that allows you to perform this analysis in under 5 minutes.

6Ds Simplicity

The six stages are:

Digitised — It starts with the digitisation of a product or service.

Deceptive — Its potential is tiny at first.

Disruptive — Should the idea have investment and visionary leadership it’s capable of being disruptive.

Demonitised — At stage 4 it benefits from economies of scale.

Dematerialised — It replaces or separates products or services into one new product.

Democratised — And its last layer is its ability to democratise being widely available to everyone.

(Learn more about the 6Ds here)

We use Amazon, one of Holon’s investments, as an example for how to apply the 6Ds to an investment decision.

In just 15 years AWS has grown to be one of the best business models in the world, reflected below in annual revenue growth.

Phenomenal growth of Amazon’s annual revenue 2006-2020

Source: Statista 2021

Let the 6Ds underpin your investment decisions

When you adopt 6Ds, you realise that the most enduring and global businesses in our lives today progressed through each stage, some still in their evolution, some are maturing, and some aren’t even on the arc.

So take your investments and plot where they sit along the 6Ds arc and consider how strong the team and culture are to keep moving along it.

Investing in innovation and exponential growth using the 6Ds — and investing in new world companies that are global and exponential — has been one of the drivers behind the outperformance of the Photon Fund to date.

A thinking model like the 6Ds will also help you to gauge the strength of an investment that could make material difference to the returns you can make, and ultimately the wealth you create.

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