Investing in dreams

This article (here) in CNN Money Fortune is worth a read. Authored by Andy Serwer, the article comprises of excerpts to an interview with Larry Page on "how to change the world". Page talks extensively about breakthrough ideas that are round the corner but people fails to take a chance on them. Sighting his own example, he says, "Even when we started Google, we thought, "Oh, we might fail," and we almost didn't do it. The reason we started is that Stanford said, "You guys can come back and finish your Ph.D.s if you don't succeed."

Some thoughts Larry Page left behind in the interview :

1. Over 40,000 people a year are killed in the U.S. in auto accidents. Is there a chance of making this number zero or a very very small number. People are working on it - on making cars automated like the car by Infiniti which will kick you back when you change lanes (a large source of accidents). Using technology to save lives is not costly .. but there are very very few people working on it.

2. People think Moore's Law is a description of what happened. But Moore's Law actually caused people to do the right thing. Everyone was organized about it - making things better quickly.

3. Solar thermal is an area Google has been working on; the numbers there are just astounding. In Southern California or Nevada, on a day with an average amount of sun, you can generate 800 megawatts on one square mile. And 800 megawatts is actually a lot. A nuclear plant is about 2,000 megawatts.

4. Back in time .. everyone said Sam Walton was crazy to build big stores in small towns. But this turned out to be a breakthrough idea and Walmart is today the world's largest retailer. Almost everyone who has had an idea that's somewhat revolutionary or wildly successful was first told they're insane.

So who kills innovation? In the investment community, analysts are the first people who put the sword on any breakthrough innovation drive. The uncertain nature of the investment and the capital required to pursue the innovation activity deals a death knell for the stock price of the company. With most CEO compensation (and tenure in a company) linked to increase in shareholder value (read: price of share), it's evident that executives will work towards short term goals ranging from one quarter to the other .. to keep analysts happy and a uniform rise in price.

Investing in companies which can give a breakthrough idea is defined by high risks. Probably a value investor will not tread this path - as he cant see into the future as much as he can see a mismatch in the price and value of a stock. So a value investor might not invest in an Apple, Google, Starbucks, Zara, Pixar, IBM, Bionade, Iridium, P&G, Intel etc. because the PE ratio would never add up.

A couple of thoughts I leave here:
1. Is there a method of factoring innovation to our methodology of stock valuation?
2. How many Indian companies are there who have made such breakthrough ideas? (I can think of Infosys in outsourcing and Bharti Airtel is low cost telecommunication)