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Author: Morgan Housel

Source: When The Magic Happens

A study of investing history gives fascinating insights into innovation and growth happening around periods of crisis. The most recent innovation of the discovery of the mRNA vaccine happened over a period of 4 months. This turnaround time for a vaccine has been unheard of in the world of medicine. Humanity was pushed to a corner with the Corona Virus spread and global lockdowns (a phenomenon, we as a current-generation had never seen). However, the discovery of the mRNA has significant implications in the world of medicine for the next 50 years as this has fast-tracked the protein folding structures that can have a potential cure for cancer in the years to come.

Innovation in a crisis – is not an entirely new phenomenon. In fact, the history books are replete with the 1930s as an era of the Great Depression in the US where the markets fell 90%. But there’s another story about the 1930s that rarely gets mentioned: It was, by far, the most productive and technologically progressive decade in history. The number of problems people solved, and the ways they discovered how to build stuff more efficiently, is a forgotten story of the ‘30s that helps explain a lot of why the rest of the 20th century was so prosperous (Morgan Housel, covers this at greater length in the article mentioned above).

This has far-reaching implications when we study companies that are going through a crisis. The markets tend to write them off – as the business, because of the change in technology and market conditions (think Adobe between 2006-12 and the shift to the cloud) or due to the change in people who drove the mission and culture of the company (think Apple from 1987-95) suffers disruption, loss of market share and lose the core culture that brought them the initial successes.

It’s during such times that the people who lead make a difference whether the business can transition into the new world and innovate around a common cause. Innovation tends to cluster together around a crisis, and this has a genesis around great leaders setting the right environment and context for growth to happen. Invariably, it’s a thin line that creates a difference between the business going bankrupt vs emerging out from a difficult situation, and great leaders create the right incentives for solving the problem. It’s the sole reason, we as an investment firm back the firms with the right people as they are and will continue to be a key driver of future growth.