Rule Breaker's Blast From the Past, Vol. 1: The Hype Cycle

Markets Motley Fool

Motley Fool co-founder David Gardner has been doing his Rule Breaker Investing podcast for two-and-a-half years now, and while he might wish that his fans listened religiously to every one, odds are that there are more than a few current listeners who haven't heard everything he's had to say so far

Continue Reading Below

So, in this episode, he's kicking off a new occasional series: Blast from the Past. He'll pick five points to revisit that he's discussed in previous shows -- ones he views as particularly worth a listen, whether you're getting a refresher or hearing them for the first time. In this segment, he harkens back to October 2015, when he was reflecting on the five-stage process that new technologies go through as they evolve.

A full transcript follows the video.

10 stocks we like better than Wal-Mart
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Wal-Mart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

Continue Reading Below

*Stock Advisor returns as of January 2, 2018
The author(s) may have a position in any stocks mentioned.

This video was recorded on Jan. 23, 2018.

David Gardner: Blast From The Past, No. 2: The date was October 14th, 2015. That's right. If you're following Rule Breaker Investing on iTunes or Spotify, often at least on iTunes I can say this is now below the fold. It's dropped off. It's not one of our last 100. ITunes only retains for viewer interest the last 100 podcasts from each of us, so this one's gone; however, you can still find it. If you google the phrase "rule breaker investing hype cycle," you'll find that October 2015 podcast entitled, What Is The Hype Cycle?

Now, some of you already know this and some of you may have learned that a couple of years ago, but I want to refresh it for you, and if you don't yet know it, I'm very pleased to share with you, again, just a sampler of one of my favorite frameworks, which I think can be so productive for you as you think about these kinds of emergent technologies and these disruptive companies that we're investing in.

Back on October 14th of 2015, I shared [this] from Gartner, the tech consulting company. Gartner has what it calls its "hype cycle." It's the story of technologies as they're born, and they go through five stages.

Briefly, the first one they call the "tech or innovation trigger." It's when that new thing has become possible and somebody's actually making it happen. For example, self-driving cars. Somebody -- I think Google was an early example through its Waymo division -- starts putting a car out there on the road that has some self-driving capability. That's the innovation trigger. Any meaningful technology that you and I are using today [from a smartphone, to a Skype session, to being able to ask your Amazon Echo to turn off the lights in the den], every one of those was an innovation trigger, stage one.

Stage two is the "peak of inflated expectations." Now, what will typically happen with these technologies, as Gartner's hype cycle framework teaches us, is that people's excitement and anticipation will get ahead of the actual possibilities of that technology being deployed and creating the solutions that we perceive that it could create. It just isn't ready, yet. Our human imaginations run ahead. There will be trade shows. There will be articles. People will click on certain things and not on other things.

And all of a sudden that hype that's built up -- and by the way, the word "hype" often with such a negative connotation. For Gartner I think it's just sort of a neutral word. It's just a phenomenon, and sometimes I think it can be quite a positive thing. Often really good things get hyped. Like the hype behind Lebron James, the great basketball player skipping college. Going directly from high school to the NBA. He's ended up being a pretty good player with a lot of hype behind him.

Anyway, the peak of inflated expectations is that time when, if you're picturing stock market graphs, you hit your all-time high and you're headed down very shortly because stage three is the "trough of disillusionment. " What happens when these technologies fail to meet our expectations of them is that quickly they start to lose face. There will be some talk of how they've lost the momentum. People will start feeling silly for having played them up at last year's keynote conference. Or it will have been delayed. Like a great video game, all of a sudden you have to wait an extra year.

These kinds of things set in and there's disillusionment. And because there's a bandwagon mentality, often in so much of the media, including tech journalism, everything kind of turns against that technology, and you hit, at a certain point, the trough of disillusionment.

The final two stages are the "slope of enlightenment," No. 4, and the "plateau of productivity," No. 5. And what I'll say in closing about this is that the slope of enlightenment is just a slow [movement] upward. After everybody has left that thing for dead it turns out, since it was a real technology, whether we're talking about genomics back in the day, and the hype and expectation about personalized medicine that we're still not really getting quite yet, but slowly, as we proceed up that slope of enlightenment, it starts to happen.

3D printing. Maybe alternative solar and wind energy. Maybe even, arguably, something like virtual reality or augmented reality. After it gets past a trough of disillusionment [I'm not saying that's true, necessarily, of any of those], you start to enter that slope of enlightenment when you start seeing yes, it is real. It is happening. You can see it in different ways. But, as you hit that final plateau of productivity, ironically, it's almost like it's invisible.

Let's go with voice activation. Eventually, we're all just talking to our Amazon Echo. We're not yet able to speak, like Douglas Adams's The Hitchhiker's Guide to the Galaxy with the Babel Fish in our ear, quite yet, but that's clearly coming along [the ability to speak into your phone]. You're standing in the middle of Pakistan, and it's translating Urdu to something else. That's coming, but it's almost receded away from top of mind for us, and so a lot of us are now thinking more about, let's say, robots. Here's something on the hype cycle these days -- blockchain.

Anyway, it was enough for me, here, just to familiarize you with the framework. I do encourage you, if you feel motivated and you want better pattern recognition, to go back and listen to What Is The Hype Cycle from October 14th, 2015.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.