Contexts are powerful

Today’s New York Times has an article entitled, “A Bonanza in TV Sales Fades Away” (http://www.nytimes.com/2011/01/06/technology/06sets.html?_r=1&ref=business) that is an excellent example of the need for contexts, as featured in my book The Intuitive Investor, to help unlock the power of your intuition.  Contexts are designed to help someone use their intuition to evaluate the future – which I will demonstrate in just a moment.

You see, facts, by definition, are things that have occurred in the past.  Yet, investing results unfold in the future.  So when we are talking about a future that is a shift away from what currently exists we can evaluate the future solely based on facts, because there is no basis in facts for projecting something radically new.  But these investment situations, where the future will change radically, are some of the most important to understand and to invest in, now.  Which brings me back to the New York Times article…

The gist of the article is that most citizens of the United States already own flat panel televisions.  Now that sales growth is tapering off big time, manufacturers are trying to induce new growth by getting us to buy 3D televisions and those that are connected to the Internet.  However, consumers are not really leaping into the new technologies the way they did the (not so) old ones of plasma and LCD.

The article means to call into question whether or not these technologies are really going to take hold with the U.S. consumer.  So how do you evaluate something like this?

Again, in my book, I have a section designed to help you answer such questions as this, but I will give you a powerful portion of that for free in the form of a question that you should add to your investment repertoire.  The question is: can I imagine a world 50 years from now without this technology?

Let’s apply that question to our two possible future successful television technologies: 3D and Internet connectedness.

Can you imagine a world 50 years from now without 3D televisions?  I can.  However, that scenario feels to me less likely than a future in which we do have 3D televisions 50 years from now.

Can you imagine a world 50 years from now without Internet-connected televisions?  I cannot.  Already folks download movies and YouTube videos and all kinds of content via the Internet.  As bandwidth and networks improve, can you imagine 50 years from now that television content will still be “broadcast?”  I feel its much more likely that all content will be delivered via the Internet.

So having this context in mind allows you to quickly evaluate the veracity and import of the Times article.  More importantly, we have moved away from the existential heart of the question – will these technologies exist in the future – to a more interesting question investment-wise: when will these technologies take root?

Jason