ESQUEÇA A INTELIGÊNCIA ARTIFICIAL: a próxima GRANDE INOVAÇÃO da sociedade | Market Makers #120

Summary

The speaker discusses investment strategies, focusing on avoiding businesses with high outcome dispersion due to the unpredictability of complex systems. However, areas with high unpredictability, like biotechnology, offer significant growth opportunities. The speaker highlights the rapid advancements in biotech, while emphasizing the difficulty in predicting which companies will succeed. Instead, they explore the supply chain, identifying four key companies that dominate biotech equipment and materials, such as Thermo Fisher and Sartorius. These companies have market power due to the stringent approval process that ties biotech drugs to specific manufacturing processes, creating long-term value.

Takeaways

• 📉 Investors avoid businesses with a high dispersion of outcomes due to difficulty in assigning probabilities.
• 🔮 Predicting or projecting in complex, adaptive systems like the market is inherently challenging and often futile.
• 🧐 Investors look for businesses where they can assign probabilities to outcomes with more conviction.
• 🚀 High-dispersion opportunities often come with the potential for significant growth, particularly in innovation-driven sectors.
• 💡 Biotechnology is seen as the next wave of innovation, likely to impact society significantly in the next 5 years.
• 💊 Despite the promising future of biotech, the speaker prefers not to invest directly in individual drug developers due to high uncertainty.
• 🏭 The real opportunity in biotech lies in the supply chain—specifically the companies providing the equipment and materials.
• 🔬 Key suppliers in biotech manufacturing (like Thermo Fisher, Sartorius, and Merck Millipore) dominate the industry due to their integral role in the drug approval process.
• 🔗 Once a biotech process is approved by regulators, manufacturers are locked into using specific equipment and materials, creating long-term market power for suppliers.
• 💼 Companies like Danaher, which dominate this biotech supply chain, have both high market power and long-term reinvestment opportunities, making them attractive to investors.

Q & A

Why do investors tend to avoid businesses with high dispersion of outcomes?

Investors avoid businesses with high dispersion of outcomes because it is difficult to make accurate predictions in such environments. High unpredictability increases the risk of incorrect probability attribution, making investment decisions more uncertain and risky.

What is the paradox that investors face regarding high-outcome dispersion opportunities?

The paradox is that while investors avoid businesses with high dispersion of outcomes due to unpredictability, those same sectors often present the largest growth and reinvestment opportunities. This creates a dilemma between risk and potential reward.

What industry is expected to drive the next wave of innovation, according to the investor in the transcript?

Biotechnology is expected to drive the next wave of innovation, with advancements anticipated to reach 'escape velocity' in the next five years, significantly impacting society.

Why is it difficult to invest directly in biotechnology drug discovery?

It is difficult to invest directly in biotechnology drug discovery because the dispersion of outcomes is too high. Predicting which company will discover the next breakthrough drug is nearly impossible due to the complexity and competitiveness of the industry.

What alternative strategy does the investor suggest for gaining exposure to biotechnology growth?

Instead of investing directly in drug discovery, the investor suggests focusing on the supply chain of biotechnology, such as companies providing equipment and raw materials, as these businesses benefit from the industry's growth without the same level of unpredictability.

Who are the major companies that dominate the biotechnology supply chain?

The major companies dominating the biotechnology supply chain are Thermo Fisher, Danaher, Sartorius (a German company), and Merck Millipore (a subsidiary of the German Merck).

Why do these companies hold market power in the biotechnology supply chain?

These companies hold market power because the approval process for biotechnology drugs includes not just the product but the entire production process. Once a drug is approved, manufacturers are locked into using the same equipment and raw materials, creating high switching costs and long-term supplier relationships.

What is meant by 'being spect for 20 years' in the context of the biotechnology supply chain?

'Being spect for 20 years' refers to the fact that once a biotechnology drug's production process is approved, the equipment and materials used in that process are essentially locked in for the long term. This gives suppliers a reliable revenue stream for years as companies cannot easily switch to other suppliers.

What is the significance of the Danaher company in the context of biotechnology investments?

Danaher is highlighted as a key player in the biotechnology supply chain with a strong history of innovation, market power, and a focus on long-term value preservation. Its founders' mindset and decisions have built a resilient and highly competent company in this sector.

How does the biotechnology market offer reinvestment opportunities for companies like Danaher?

The biotechnology market grows by 12-15% annually, providing continuous reinvestment opportunities for companies like Danaher. With their market power and involvement in critical production processes, they can consistently capitalize on this growth.