This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Make Money by Understanding 'Hype Cycles' in Technology: Part I

NEW YORK ( TheStreet) -- The first thing every securities lawyer learns is that emerging technology is a double-edged sword.

On the leading edge, inexpensive innovations that ramp rapidly over a few years lead to thriving businesses that deliver market-beating returns. On the bleeding edge, costly innovations that can't be implemented at relevant scale for years or decades morph into financial black holes that suck the lifeblood out of portfolios and teach a whole new generation of investors about a predictable and unavoidable market phenomenon that the Gartner Group has dubbed "The Hype Cycle."

For better or worse, private and public financing of technology and resource-development projects can't happen without hype cycles that repeat themselves over and over again. Hype cycles are a force of nature, and as inexorable and predictable as the tides.

The first hype cycle in the life of every technology or resource project begins with a "Eureka moment," when an idea takes form or a resource is identified. At that stage the possibilities are limitless because the inventors and prospectors only have enough data to support a conclusion that additional work is justified. It's the riskiest possible class of investing because the odds are very high that the perceived potential will prove illusory as R&D or exploration follow their natural course.

The most common result is a mini-hype cycle where expectations are highest at the outset, but rapidly fade as technical challenges arise, compromises are made, delays are encountered, costs exceed budgets and the true market potential gets clearer. At the end of the process, the R&D and exploration investors either lick the wounds of a failed project or profit handsomely as a new trigger point arrives and the commercialization hype cycle begins.

In their book Mastering the Hype Cycle, the Gartner Group's Jackie Fenn and Mark Raskino explain that the hype cycle "arises from the interplay of two factors: human nature and the nature of innovation. Human nature drives people's heightened expectations, while the nature of innovation drives how quickly something new develops genuine value. The problem is, these two factors move at such different tempos that they're nearly always out of synch. An innovation rarely delivers on its promise when people are most excited about it. Expectations rise quickly and are easily frustrated, while innovations develop slowly, step by step."

In Gartner's model, the cycle starts with an "Innovation Trigger," where a public demonstration, product launch or other event generates press and industry interest. The innovation may have been in development for years, "but at this point it reaches a stage where word of its existence and excitement about its possibilities extend beyond its inventors or developers. More and more people hear of its potential, and a wave of buzz builds quickly as everyone passes on the news."
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ALTI $0.25 0.00%
GM $31.80 0.00%
TSLA $240.76 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs