“It’s wonderful to promote new industries, because they are very promotable. It’s very hard to promote investment in mundane product. It’s much easier to promote an esoteric product, even particularly one with losses, because there’s no quantitative guideline.”

The Wright brothers - aviation pioneers

In July 1999, famed investor Warren Buffett spoke about risks to the stock market at a Sun Valley summit organized by Allen & Co. The story is told in the opening chapter of Swowball, the authorized Buffett biography by Alice Schroeder.

Swinging his arms like an orchestra conductor, he succeeded in putting up another slide while explaining that, although innovation might lift the world out of poverty, people who invest in innovation historically have not been glad afterward.

“This is half of a page which comes from a list seventy pages long of all the auto companies in the United States.” He waved the complete list in the air. “There were two thousand auto companies: the most important invention, probably, of the first half of the twentieth century. It had enormous impact on people’s lives. If you had seen at the time of the first car how this country would develop in connection with autos you would have said, ‘This is the place I must be.’ But of the two thousand companies, as of a few years ago, only three car companies survived. And, at one time or the other, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. So autos had an enormous impact on America, but in the opposite direction on investors.”

But, sometimes it is much easier to figure out the losers. There was, I think, one obvious decision back then. And of course, the thing you should have been doing was shorting horses.”

  • U.S. Horse Population
  • 1900 17 million
  • 1998 5 million

“Frankly, I’m kind of disappointed that the Buffett family was not shorting horses throughout this entire period. There are always losers.”

“Now the other great invention of the first half of the century was the airplane. In this period from 1919 to 1939, there were about two hundred companies. Imagine if you could have seen the future of the airline industry back there at Kitty Hawk. You would have seen a world undreamed of. But assume you had the insight, and you saw all of these people wishing to fly and to visit their relatives of run away from their relatives or whatever you do in an airplane, and you decided this was the place to be.”

“As of a couple of years ago, there had been zero money made from the aggregate of all stock investments in the airline industry in history. So I submit to you: I really like to think that if I had been down there at Kitty Hawk, I would have been farsighted enough and public spirited enough to have shot Orville down. I owed it to future capitalists.”

Source: https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553384619