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ONE OF the homespun truths from Warren Buffett, the hugely successful American investor, is that people should never confuse a brilliant technological innovation with the opportunity to make money.
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Investors thinking about putting hard-earned cash into Google, the internet search engine, should heed what he says and keep their hands in their pockets.
History is on Buffett's side. The great innovations of the 20th century - automobiles, aircraft, radio television, computers - have all delivered huge benefits to society and equally huge losses to shareholders.
With this in mind, it has been facetiously suggested that when the Wright Brothers took to the air for the first time 100 years ago, a true capitalist would have shot them down. This is because the entire aircraft manufacturing and airline business has, on balance, lost investors money since then. There have been good and bad times in the industry, but aggregate numbers suggest it has been a net consumer of capital. You can say the same of cars, radio, TV and computers.
The reason, in essence, is that dramatic innovations attract a huge amount of attention and excitement. Everyone wants to get into the new market and, because the prospects seem so exciting, there is no shortage of capital.
The result is a great increase in the number of rivals and years of ferocious competition. This leads, of course, to continuous innovation, vast expansion of the market and more benefits to society. But it also puts severe pressure on prices and margins. So most pioneers make big money in beginning, but their advantage quickly gets competed away.
Cars, for example, may have looked a brilliant opportunity 100 years ago. But at that time in America, there were thousands of companies to choose from and today there are three. How would one have known which were worthy of your savings?
Likewise, more recently with computers. Not 20 years ago, there were thousands of companies manufacturing PCs. Now most have gone out of production and even the small band of survivors get the important parts from a handful of factories in Taiwan and China and put their own brand names on the outside for marketing purposes.
Google, clearly, is a great business, but that does not make it a great investment. Even if you can live with the two-tier structure where new investors will get shares with inferior voting rights, and even if you think the employees will remain as motivated when they become rich beyond their wildest dreams, and even if you believe the company will survive all the tensions that follow, internally and externally, from the decision to go public, you should still be in no rush to invest.
Banks' fate
CHANCES are that one of Spain's biggest and most successful banks, Banco Santander, will launch a bid for Abbey - the re-branded but still struggling former Abbey National building society.
Abbey chief Luqman Arnold, having been an investment banker earlier in his career, might well consider that the Spanish approach - whether or not welcome at this point in Abbey's recovery - should be turned to shareholders' advantage. He could see it as an opportunity to auction the bank to the highest bidder.
This puts Lloyds TSB in an interesting position. It tried to buy Abbey but was vetoed by the competition authorities. However, one of the senior people on the competition body told me it formed its decisions looking only two years ahead, on the basis that it could not reasonably be expected to see much beyond that.
It was an unofficial comment but it does suggest Lloyds TSB should not automatically consider itself shut out of any auction. It could argue that circumstances have changed. It seems absurd that a leading British bank should be up for sale and the only companies in the world not allowed to buy it are other British banks.
It is a recognised business fact that a strong home platform makes overseas expansion much easier.
Santander, which is huge in Spain, demonstrates the point. Conversely, the British regulatory authority's refusal to allow further consolidation at home weakens the ability of our banks to compete overseas.
But it condemns them in time to become takeover fodder too, because other countries do not play by the same rules. Keeping them small means they will become marginalised on the international stage and incapable of resisting a takeover by one of the big US or European banks.
But no doubt the Government and Competition Commission will say they could not have been expected to foresee such an outcome.
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