Risk Asessment slows innovation

[zbarlici]

Referring to the private sector, not money invested by govt, but private money.

I have just been thinking about how nowadays investment decisions are made based on risk assesment... It kind of makes sense that because of that reason, for the most part, a person or a company with a novel idea for a breakthrough will have a very, very difficult time obtaining the $$$ required for R&D because risk asessment says "unproven/unknown technology, possibly not dooable".

In the last 50 years we have advanced so much in the tech sector, but there is not much new. We`re just getting faster/smaller/higher density transistors on that chip, but the basics were already all there, they were just improving on the concept...

If the market today would be what it was 100 years ago i think innovation would be ten times fold what it actually is.

Take, for example, Hale`s extraordinary achievements with securing financing for R&D of the 60 inch, 100 inch, and the 200 inch telescopes. The 200 inch telescope was built by 1948, and i think it took over 10 years to build. Numerous serious engineering issues exsisted at the time the grant for the project was given(by private investor). New technologies had to have been developed to support the succesful construction of the telescope... it was anything but low risk. I think that if risk asessment was back then what it is today we would most likely not have the 200 inch Hale Telescope observatory...

[zbarlici]

admin, pls move this thread to the general forum....

[TallDave]

I can't buy into the "ignorance is bliss" idea.

If the market today would be what it was 100 years ago i think innovation would be ten times fold what it actually is.

I don't know, you may be underestimating the amount of wasted effort because of the absence of good risk management.

Something very few people remember is the electric bubble of the early 20th Century. Power companies sprung up everywhere promising investors huge returns, and far too much electric line was laid. When the bubble burst, the repercussions were serious enough to land some of the billionaires (in today's dollars) of the day in prison.

In the last 50 years we have advanced so much in the tech sector, but there is not much new. We`re just getting faster/smaller/higher density transistors on that chip, but the basics were already all there, they were just improving on the concept...

It's a very, very, very costly and complex process. The only reason it keeps going is that every success means more utility, justifying more expense.

[zbarlici]

I can't buy into the "ignorance is bliss" idea.

If the market today would be what it was 100 years ago i think innovation would be ten times fold what it actually is.

I don't know, you may be underestimating the amount of wasted effort because of the absence of good risk management.

Something very few people remember is the electric bubble of the early 20th Century. Power companies sprung up everywhere promising investors huge returns, and far too much electric line was laid. When the bubble burst, the repercussions were serious enough to land some of the billionaires (in today's dollars) of the day in prison.

In the last 50 years we have advanced so much in the tech sector, but there is not much new. We`re just getting faster/smaller/higher density transistors on that chip, but the basics were already all there, they were just improving on the concept...

It's a very, very, very costly and complex process. The only reason it keeps going is that every success means more utility, justifying more expense.

I`m not asking you to buy into the ignorance is bliss idea... but when a new venture is proposed, something that has not been done before, rather than "ignorance", it would be an "unknown". Investment into soemething that is unknown is considered high risk for obvious reasons. To most investors nowadays the bottome line is "returns", no?

I guess risk asessment kind of has to be rigorous what with so many claims of innovations having been disproved and shown as fakes...

[KitemanSA]

There is capital risk management which leads to more wise yesses and capitol risk management which leads to more ignorant noes. Never get the two confused.

A 747 crashes and the fleet is flying in hours to days and improved as needed. A shuttle crashes and the program is shut down for years.

I guess another way to look at it is asset management vs. ass set management.

[drmike]

A 747 crashes and the fleet is flying in hours to days and improved as needed. A shuttle crashes and the program is shut down for years.

I guess another way to look at it is asset management vs. ass set management.

Yet another line I have to steal!!

[TallDave]

Investment into soemething that is unknown is considered high risk for obvious reasons. To most investors nowadays the bottome line is "returns", no?

Yes, so investors in a high-risk project expect large potential returns to justify taking the risk.

This does happen quite a bit. Venture capital is a huge business; everyone wants to own a piece of the next Intel, Microsoft, Amazon or Google.

Even today, though, there are still some scams that get funded. Every year some poor saps buy into another startup's claim to have compression technology that violates the Shannon limit, even though it's long been known this is mathematically impossible. But they still get millions from VC, every year.

[scareduck]

Something very few people remember is the electric bubble of the early 20th Century. Power companies sprung up everywhere promising investors huge returns, and far too much electric line was laid. When the bubble burst, the repercussions were serious enough to land some of the billionaires (in today's dollars) of the day in prison.

Not to mention the various waves of railroad overexpansion, some of which were caused, directly or indirectly, by government inducements which caused companies to build uneconomic rail lines. One of the few companies that avoided this was the Great Northern Railway, the only transcontinental railroad built entirely with private money, and one of the few to survive the shakeout from the Panic of 1893. This is one reason I've been very adamant that the Polywell -- or any fusion device, really -- needs to stand on its own on purely economic grounds, or else it's just so much hot air.

[MSimon]

Something very few people remember is the electric bubble of the early 20th Century. Power companies sprung up everywhere promising investors huge returns, and far too much electric line was laid. When the bubble burst, the repercussions were serious enough to land some of the billionaires (in today's dollars) of the day in prison.

Not to mention the various waves of railroad overexpansion, some of which were caused, directly or indirectly, by government inducements which caused companies to build uneconomic rail lines. One of the few companies that avoided this was the Great Northern Railway, the only transcontinental railroad built entirely with private money, and one of the few to survive the shakeout from the Panic of 1893. This is one reason I've been very adamant that the Polywell -- or any fusion device, really -- needs to stand on its own on purely economic grounds, or else it's just so much hot air.

One thing to keep in mind in all this is that the world is generating way more capital than can profitably be invested. That is not a bad thing.

For instance - cheap broadband in the USA is a direct result of the telecom bust of 2001.

A Polywell bust might be bad for investors - it would be good for the world.

[gblaze42]

I have just been thinking about how nowadays investment decisions are made based on risk assesment... It kind of makes sense that because of that reason, for the most part, a person or a company with a novel idea for a breakthrough will have a very, very difficult time obtaining the $$$ required for R&D because risk asessment says "unproven/unknown technology, possibly not dooable".

Unfortunately companies are always looking to make a profit, that includes research and development. I think there are two forces that define todays R&D in North America and they are;

1) Quick return on investment; this usually means small R&D, the most bang for the investment buck.
2) Product Litigation; this causes companies to loose a lot of money, Probably why we don't see flying cars as yet. Hate to see the litigation on that one if one crashed.

Both cause slower R&D. Whats interesting is that companies would probably make a better return on high risk/high payoff research if they were willing to take wait a little longer and people wouldn't try to get rich off of companies problems.

[MSimon]

I have just been thinking about how nowadays investment decisions are made based on risk assesment... It kind of makes sense that because of that reason, for the most part, a person or a company with a novel idea for a breakthrough will have a very, very difficult time obtaining the $$$ required for R&D because risk asessment says "unproven/unknown technology, possibly not dooable".

Unfortunately companies are always looking to make a profit, that includes research and development. I think there are two forces that define todays R&D in North America and they are;

1) Quick return on investment; this usually means small R&D, the most bang for the investment buck.
2) Product Litigation; this causes companies to loose a lot of money, Probably why we don't see flying cars as yet. Hate to see the litigation on that one if one crashed.

Both cause slower R&D. Whats interesting is that companies would probably make a better return on high risk/high payoff research if they were willing to take wait a little longer and people wouldn't try to get rich off of companies problems.

Discounted cash flow pretty much precludes any investment that takes more than 5 years to reach the market. And that is the risk assessment that is hardest to beat.

[TallDave]

Simon,

Depends on the industry. In a tech market, sure, you need a payoff pretty fast. But projects like hydroelectric dams or oil fields can have decade-long buildouts because they deliver huge profits if things turn right.

[jmc]

Something very few people remember is the electric bubble of the early 20th Century. Power companies sprung up everywhere promising investors huge returns, and far too much electric line was laid. When the bubble burst, the repercussions were serious enough to land some of the billionaires (in today's dollars) of the day in prison.

Not to mention the various waves of railroad overexpansion, some of which were caused, directly or indirectly, by government inducements which caused companies to build uneconomic rail lines. One of the few companies that avoided this was the Great Northern Railway, the only transcontinental railroad built entirely with private money, and one of the few to survive the shakeout from the Panic of 1893. This is one reason I've been very adamant that the Polywell -- or any fusion device, really -- needs to stand on its own on purely economic grounds, or else it's just so much hot air.

One thing to keep in mind in all this is that the world is generating way more capital than can profitably be invested. That is not a bad thing.

For instance - cheap broadband in the USA is a direct result of the telecom bust of 2001.

A Polywell bust might be bad for investors - it would be good for the world.

That's a good point, just because something's bad for investors doesn't necessarily mean its not worth doing.

Warren Buffet once commented that if he was present at the flying of the Kiti Hawk he'd like to believe that he would have done the right thing and shot the Wright Brothers to save future investors from losses in the aircraft industry.

The aircraft industry wasn't a bad thing for society though, its just and example of an industry where investors lost and the customers won.

The channel tunnel between Britain and France is another example of an enterprise where investors were bankrupted, but the general public can now get from Britain to France by rail more profitably. The channel tunnel can be operated at a profit, it just could pay back the interest.

[Mike Holmes]

Let's talk big ticket. The moonshots. Have they proven profitable over time? Should we have done them or not?

Heck, let's talk really big... the interstate highway system. Was that "profitable?"

I think that we've done well as a country largely because we're willing to take risks, and absorb losses. Because we have the vision to realize that the personal fortunes that are "lost" are investments in the big picture. Win-win situations.

The internet, anyone?

Mike

[KitemanSA]

Let's talk big ticket. The moonshots. Have they proven profitable over time? Should we have done them or not?

I used to be a NASA cheerleader type, and was heavily into "spin-offs" control. But seems that most of the technologies were used by NASA, not created by them. They would have happened anyway, and who can say if they maybe wouldn't have turned out better without NASA fingers in the pie.

Heck, let's talk really big... the interstate highway system. Was that "profitable?"

Could have been if done properly. Instead we have subsidized urban sprawl, pollution, huge oil deficits, and a failing railroad industry. Profitable? On the whole, questionable.

I think that we've done well as a country largely because we're willing to take risks, and absorb losses. Because we have the vision to realize that the personal fortunes that are "lost" are investments in the big picture. Win-win situations.

I think we are doing poorly as a country than we should be because the risks folks are willing to take are all too often voided by ham-handed government involvement in industries they should never touch.

The internet, anyone?

Oy vat a mess! Worms, trojans, phishing, pharming, viruses, identity theft, and interminable mind-numbing blogs. Wait, that's us!