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How to Win with BP
Two years ago, Nicholas Carr wrote an article for Atlantic Magazine titled "Is Google Making Us Stupid?"
Now he's come out with a book, titled "The Shallows," elaborating on the idea, which is this:
Our continued use of the Internet, characterized by brief periods of reading interrupted by jumps to related stories and more brief periods of reading, image scanning and video watching, has reconfigured our brains, making them more adept at clicking and skimming, and less capable of information retention, comprehension and the deep thinking that can result from those first two.
According to Carr, whose conclusions are supported by brain scans of Internet surfers, the flood of information from the Internet overwhelms the typical brain's capability to process it thoroughly enough to move it from short-term memory to long-term memory. As a result, much of what we read or see is quickly forgotten.
On the upside, our Internet use has brought us faster reaction times and better visual-spatial skills. But according to Carr, those gains are outweighed by the diminution of our ability to concentrate at length on one subject and as a result, we're losing some of the deep-thinking ability that has made us human.
Here's what I think. Carr is undoubtedly correct in his characterization of our present situation. I, too, sometimes lament the world in which people are too engrossed in acquiring the latest tidbits of information to sit back and consider the big picture.
But when I sit back and consider the big picture (something I do fairly frequently) I see a long tradition of technologies that are likely to have reconfigured our brains previously, though we didn't have the brain-scanning tools to measure the changes at the time.
The first technology might have been mastery of fire, which enabled men to overcome the limitations of daily light/dark cycles. Wonderful as we acknowledge that development to be today, I'm sure there were many at the time who questioned it.
Much later came writing, which to some extent supplanted the oral traditions that had united societies. Do you suppose there were critics who predicted that writing would destroy society as they knew it? Of course. And it did.
Then came electricity, the telephone, radio, television, and cell phones, each contributing to a dramatic change in our traditions of communicating. To some extent, each one brought change that was disruptive of previous social patterns--when I was kid, my parents made it a rule not to answer the telephone during dinner--but in the long run the progress these developments brought outweighed the losses.
So while I accept the facts that Carr has explained, I'm not worried.
I know that the benefits of the Internet outweigh the costs. And if one of the costs is a reduced ability to engage in focused, in-depth thought, I'm confident that loss will be outweighed by the benefits of our rapid access to vastly more information than we had previously ... along with the sometimes underappreciated benefits of that access.
Last week I was in Washington, DC at the annual conference of the Specialized Information Publishers' Association (SIPA).
One of the speakers was Mark Ranalli, founder of Helium, a web site that takes user-generated content (UGC) from contributors on a wide variety of topics, lets the articles that are the most popular, accurate and well-written rise to the top over time, and rewards their authors accordingly with real money.
Mr. Ranalli's message was that the wisdom of the crowd trumps the wisdom of any one individual; it's a message savvy investors know all too well.
Ranalli told us that thanks to the power of UGC, Epicurious is being overtaken by Allrecipes.com, and Zagat is being overtaken by Yelp. Both these upstarts are winning because the wisdom of the crowd, filtered and processed through intelligently designed mechanisms, beats the wisdom of experts.
Other sites benefiting from UGC include Amazon.com, eBay, Facebook, Epinions, TripAdvisor, Twitter, Vimeo, Wikipedia and YouTube. Yes, some of these are great time-wasters, but they can also be great sources of intelligence, when used properly.
Bottom line: Don't be afraid of the future. Sure, the future is unknown, and it's natural to approach the unknown with trepidation. But that doesn't mean it will be as scary as we fear. In the long run, the future has always brought progress, and I don't think our time is so special that our future will prove different.
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As to the stock market, I have two stocks to talk about today.
The first is Illumina (ILMN), which is a leading developer and marketer of genetic testing machines, valued by researchers the world over for their power to enable efficient high-throughput testing and analysis of RNA, DNA and proteins. Illumina has seen revenues grow every one of the past ten years, and it's seen earnings grow every year since it turned profitable in 2006. The future is bright.
In fact, Illumina was recommended in today's issue of Cabot Top Ten Report. For more information, click here.
From a personal level, what's interesting about Illumina is that the company last year began using its machines to offer consumers individual genome sequencing for a price of $48,000. This is valuable (to some extent) if you want to see what diseases and conditions you might be genetically susceptible to, or how your body might react to certain drugs. It's one step on the road to "personalized" medicine. To date, the company says that "at least" 14 people have been tested. And now, thanks to falling costs, the company is dropping the price of sequencing to $19,500, a level that should attract more customers.
However, just last Friday, the FDA (in its infinite wisdom) notified five genetic test makers, including Illumina, that they must get federal approval before marketing their products to consumers! The other four companies are 23andMe, deCODE Genetics, Navigenics and Knome. The FDA is claiming that the companies' products are medical devices and thus must be certified as safe and effective.
I don't agree. I think the FDA has enough power, and that if a person voluntarily chooses to get information about his body from any company offering to perform the service, the FDA has no right to stand in the way. But knowing the way that agency's power has been allowed to expand, I fear that it will be allowed to regulate this business, and in the process slow progress and increase the cost to consumers.
In any event, the important fact from our point of view is that this FDA notice didn't affect the stock, which remains a picture of health in what is still a volatile and generally unsupportive market.
For more info on Illumina and Cabot Top Ten Report, click here.
Finally, my two cents on BP.
The stock has fallen from 60 to 30 in the past two months, which means some investors are thinking of buying it at a bargain price. But I learned long ago it can be very dangerous to catch a falling knife.
More intelligent is to buy when all is calm, and the stock is simply unloved.
For example, BP was recommended in the Classic Benjamin Graham Value Model in the December 2008 issue at a buy price of 44.31. Eleven months later, BP reached its Minimum Sell Price. Editor Roy Ward recommended that subscribers sell BP on November 19, 2009 at 54.30 for a gain of 34.8%.
Someday, Roy may recommend BP again, but before that happens the company will have to put its legal problems behind it (how many years will that take?), and the stock will have to fade from public consciousness.
In the meantime, Roy is looking at three oil drillers: Transocean (RIG), Ensco (ESV), and Noble (NE). To see his latest advice, click here.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory