The Market Makers: Why True Innovators Are Reshaping Investment Strategy

• True Innovators investing focuses on companies that create new markets, establishing long-term competitive advantages.
• AI is accelerating the market leadership of True Innovators, creating new investment opportunities in tech.
• Market creators often build powerful platforms and economic moats, driving sustained growth and pricing power.
• Investing in True Innovators offers potential exposure to long-term growth, despite risks like high valuations.

Beyond the Herd: Why Market Creators Could Be Worth a Look

There’s a certain type of person who, upon seeing a long queue, immediately joins it. They assume, quite reasonably, that whatever is at the end must be worth the wait. In investing, this is called following the herd. It’s safe, it’s comfortable, but I’ve always found it a bit, well, dull. To me, the far more interesting question is, who started the queue in the first place? And more importantly, are they selling the tickets?

I think there’s a profound difference between companies that compete in a market and companies that create one from thin air. One is a street fight for scraps, the other is like discovering a new continent and drawing the maps yourself.

Playing the Game vs. Inventing It

Let’s be honest, most companies are just trying to build a slightly better mousetrap. They tweak, they refine, they shave a few pennies off the cost, and they spend a fortune on advertising to convince you their version is shinier than the next. It’s a tiring, endless battle for incremental gains.

Then you have the true innovators. Think of Apple before the iPhone. The smartphone market, such as it was, consisted of clunky plastic bricks for business types. Apple didn't just enter that market. It took one look, laughed, and bulldozed the entire thing. It created a new category so compelling that every other player had to scrap their plans and start copying. That’s not just winning the game, it’s changing the rules so only you know how to play. We see this pattern again and again. Amazon didn’t just sell books better, it built the very infrastructure of modern e-commerce.

The Unfair Advantage of Being First

When a company successfully carves out a new market, it often enjoys what I like to call a series of unfair advantages. First, they get to be the landmark. They become the default, the brand name that is synonymous with the product itself. This customer loyalty is incredibly difficult for latecomers to break.

Second, they often set the technical standards. Competitors are then forced to play in a sandbox built by the innovator, which can give the original company a persistent edge. It’s this kind of thinking, this focus on companies that write the rulebook, that underpins investment themes like the True Innovators. The idea is to look for the architects, not just the tenants.

And of course, there’s pricing power. When you’re the only game in town, you have a great deal more say over what things cost. This can lead to the kind of profit margins that companies fighting in crowded markets can only dream of.

A Word of Caution, Naturally

Now, let’s not get carried away. Investing in these pioneers isn’t a risk-free ticket to riches. For one, everyone knows they’re pioneers, which means their shares often trade at eye-watering valuations. You are paying a premium for that potential, and if growth stumbles, the fall can be painful.

There’s also the not-so-small matter of regulation. When you become so successful that you define a market, governments tend to take a very keen interest in you. The threat of antitrust action is a constant shadow for many of these giants. And finally, there’s the irony that the innovator can always be disrupted by the next one. Just ask Kodak.

Still, it seems the current artificial intelligence boom might just give these established creators another powerful tool. Companies with vast reserves of data and capital could be uniquely positioned to leverage AI, potentially digging their economic moats even deeper. It’s a fascinating dynamic, and for any investor, it’s certainly more interesting than just joining the back of the queue.

Deep Dive

Market & Opportunity

• The "True Innovators" theme is composed of 17 companies identified as market creators.
• The advertising-driven internet economy, pioneered by companies like Alphabet, generates hundreds of billions in annual revenue.
• The current artificial intelligence revolution is seen as a factor that could accelerate the competitive advantages of these companies.

Key Companies

• Apple (AAPL): Created the modern smartphone market with the iPhone's touchscreen paradigm. Core products and platforms include the iPhone ecosystem, AI integration (Siri, computational photography), and the App Store, which serves as a distribution platform for mobile applications.
• Alphabet Inc. (GOOGL): Built the infrastructure for the advertising-driven internet economy through its search dominance. Key initiatives include early investments in AI research, autonomous vehicles through its Waymo division, and quantum computing.
• Amazon.com Inc. (AMZN): Established the modern e-commerce infrastructure and uses machine learning to optimize logistics. Its Amazon Web Services (AWS) division provides the foundational cloud computing for many other businesses and generates higher profit margins than its retail operations.

Primary Risk Factors

• Companies may trade at premium valuations based on high growth expectations, leading to volatility if growth slows.
• The risk of being disrupted by newer technologies, as seen with historical examples like Kodak.
• Potential for increased regulatory scrutiny and antitrust investigations as companies grow more influential.

Growth Catalysts

• The commercialization of artificial intelligence is creating opportunities to launch new products and services.
• Market-creating companies can establish dominant market share and technical standards before competitors fully enter the space.
• Platform-based business models, like Apple's App Store and Amazon's AWS, create network effects and multiple revenue streams.
• Strong brand recognition and customer loyalty are often developed early, creating a durable competitive advantage.