"I look for companies that are reducing friction in the market place, helping to define industry segments, and ultimately making the flow of information and services more seamless."
– Shawn DuBravac
You've heard it before: Investing is more art than science. Indeed, there are precious few truisms that hold up over different times and different situations. However, I believe the advice I'm presenting to you in this article will help you tremendously throughout your investing lifetime.
Why? Two reasons:
- The situations described here will take a moderate amount of effort on your part to identify (a small barrier most people won't attempt, thus the information is more valuable to you).
- They are situations mostly underappreciated on Wall Street, because they often point to stocks considered overvalued by traditional metrics.
What this chief economist looks for in stocks
Shawn DuBravac is the Consumer Electronics Association's chief economist. I had the pleasure of chatting with him about investing at the recent CES Unveiled event in New York City. Shawn says companies such as Amazon.com (NASDAQ:AMZN), Facebook (NASDAQ:FB), and LinkedIn (NYSE:LNKD.DL) share some important and defining characteristics:
"Companies that have done well ... are ones that have helped to remove friction from the marketplace."
Welcome to the third industrial revolution
So, it's easy to see how Twitter (NYSE:TWTR) and Google (NASDAQ:GOOGL) remove friction, organize and curate information, and help define their categories. But there's even more you can look for when searching for great stocks.
To help frame this concept, Shawn explains that we're in our third industrial revolution. The first started in 1760, when small and independent "mom and pop" textile mills consolidated into larger mills that used less hand production and more machinery. Around 1860, the second industrial revolution saw much greater productivity thanks to electricity, communication technologies (the telephone, telegraph, and radios), and the introduction of the internal combustion engine.
And now, in 2013, our third industrial revolution empowers individuals – like you and me – to become a vital part of the manufacturing process:
"The individual is becoming the creator."
Why 3D printing is huge
3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) are among the many 3-D printing companies that allow the mass customization Shawn talks about in that video. They remove friction from the process:
"I've seen a huge number of things that have been printed as opposed to purchased."
Let's summarize the main points of this article. To find winners that may be flying under the radar or, as is very common, hiding in plain sight, look for companies that:
- Take advantage of underlying trends in technology
- Remove friction from the marketplace
- Organize dispersed information (by aggregating it, curating it, and providing it back in more digestible way)
- Make the flow of information and services more seamless
- Help define industry segments
Rex Moore owns shares of Facebook. The Motley Fool recommends 3D Systems, Amazon.com, Facebook, Google, LinkedIn, Nike, and Stratasys. The Motley Fool owns shares of 3D Systems, Amazon.com, Facebook, Google, LinkedIn, Nike, and Stratasys and has the following options: short January 2014 $20 puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.