Evolution and its lasting value
There is a misconception that products and business models are static rather than evolving things. Maybe this is rooted in the industrial economy and its byproduct the discounted cash flow model, which only knows growth, margins and a terminal value that is a magnified version of the present.
There is little evidence that what may have been true of factories and supermarkets is true of their digitized variants today. Growth is now not only based on increase but also fluidity. Sector boundaries fade, expectations change, technology and data expand, and offerings evolve. Some are evolved away for failing to do so.
Future (or terminal) value, by far the biggest component of present value estimates in the DCF dynamic, is really option value, though it is rarely recognized as such. What’s more, it presupposes that the static snapshot at its point in time lasts into perpetuity, which is to say, forever, a long time by any standard, let alone the modern one of fast, even accelerating, change.
The captioned Wall Street Journal blurb, cut off in mid-sentence, is maybe better left that way. An asset’s quality is best measured by its adaptability; always on its way, never arrived. The asset grows with possibilities, as these are recognized, it shrinks when possibilities (or their recognitions) cease.
[Headline image at the top: John Gutfreund (“King of Wall Street”) and Michael Bloomberg (technology entrepreneur) circa 1975 at Salomon Brothers (now gone).]
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