That “we tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run” is the prescient supposition of Roy Amara, a researcher and scientist who worked at Stanford.
His law encapsulates the all-too-often observed phenomenon within equity markets of rapid highs being scaled, followed by plummeting lows as a groundbreaking technology is brought to market. The enthusiasm and excitement of a new technology has on many occasions captured the imagination of the supposedly hard-nosed investment community to overstate the upside for profits and lead to inevitable disappointment for shareholders.
Setting aside the benefits of a revolutionary new technology for society and looking at the rather more prosaic requirements for a shareholder who simply looks to realise a profit, it is easy to imagine how the importance of the nuts and bolts of a balance sheet and the dynamics of cash-flows can be reinterpreted and reimagined in the context of the potential utility for mankind of a revolutionary new innovation.
Gartner’s Hype Cycle offers a very intuitive schematic of a trend in the equity market that is somewhat unique to the technology sector.
