The Drip Portfolio
Well, at the end of last week I got this e-mail from Denton Kanouff, the Vice President of Marketing for Digital Network Systems at General Instrument. Let me quote him directly: "GI is a publicly traded company on the NYSE (GIC). We have shipped far more interactive digital set top terminals than any company in the world (over 5 million to date) and we do make a consumer set top terminal with PC capabilities that has more horsepower, memory, advanced software options and networking options than any company in the world. In fact, we have advanced interactive services deployed to cable subscribers today including e-mail, Internet access, video-on-demand and other services."
We're going to talk on the phone this week, so my column on General Instrument will be delayed until next Monday. What could make General Instrument interesting to direct investors is Motorola (NYSE: MOT), which does have a Drip and is acquiring it by trading 0.575 shares of its stock for each share of General Instrument. Following the merger, General Instrument shareholders will hold 17% of Motorola. With this addition I believe we need to take a closer look in the future at Motorola as a Drip investment.
Now, let me take you where this column is going to go -- by the "scenic route." I would like to add a criterion for Pathfinder companies that's been a long time in the making. This morning I was reading an article that traced the current changes in the economy and commerce to events 500 years ago. I disagree on this. I think we have to go back several thousand years when writing was first developed. Without a method to record information, or transmit information, it was impossible to engage in any real extensive commerce, collect taxes, or raise funds for any projects. Once the writing systems were developed in the ancient world, modern society could develop. In time it was possible for leaders to write letters to each other, record laws, and agree on treaties. The world became smaller. However, early writing systems were difficult to master because of the complexity, so it was an exclusive class of scribes that controlled the communications.
Things still changed. The Phoenicians, who were big on trade, came up with an easier-to-use writing system based on sounds -- it could be learned without years of instruction. Ultimately, their system evolved into the Greek, Roman, Hebrew, Arabic, and Cyrillic alphabets. Reading and writing by the masses was possible. There was a setback during the Dark Ages when barbarians overran Europe and the only literate were scattered clergy who exerted heroic efforts to make copies of earlier writings. The Arabs in their empire at the time kept knowledge alive though, and they came up with an easy to use numeric system. Now math was something that could be practiced to some extent by all. The Arabs also brought from China something pretty simple but very important for communication: paper.
In the 1400s, Gutenberg introduced the printing press. This and cheap ordinary paper allowed books, newspapers, and pamphlets to be mass-produced. In the 1800s, we saw instantaneous communication introduced with the telegraph. Then, the phone allowed everyone to have that communications advantages, not just trained telegraphers. Radios and then television allowed broadcast of news to the masses as it happened. Today, with the Internet you and I can broadcast to the entire world our ideas on home pages we can set up. By Monday evening my old friend Mohammed Rashid in Abu Dhabi can be reading this column -- Hi Mohammed!
Do you see what has been happening over the past few thousand years? Ultimately communication has gotten cheaper, and it has been brought "down" to the masses. Each wave starts with the elite getting access to it, and then it works its way down. Each step forward has resulted in changes in governments, religion, and commerce. Each step forward has made the world smaller.
Where do I think we will go from here? The demand for communication will continue to grow -- once people find they can communicate to the world from their set top boxes, they will want more. I suspect we'll see the demand for video communications, which will require further bandwidth. I think the Network Computer will happen (I sneered at it when the best you could get was 28K baud modems) since broader bandwidth makes the idea feasible. Why keep upgrading a computer to your home, when you can get unlimited hard drive space and better processing power from a remote server?
So, I think as a general statement, we need to look for the companies that are bringing more communication down to the broadest levels of society. Our Pathfinder companies need to be developing the modern version of the Roman road system, which isn't just used by the ambassadors and kings, but by the more humble merchants, farmers, and townspeople. So, I think the major question we need to ask of a potential Pathfinder company is "Will its product make access to the Internet easier and cheaper for everybody?" In the past several thousand years, this is the way communications has been evolving and we don't want to fight the trend.
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