<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=3003101069777853&amp;ev=PageView&amp;noscript=1">

What I'm reading #33: Ingenuity and the investor

By Sam Instone - August 19, 2022

We can learn a lot from Frederick Smith, Chairman and CEO of FedEx Corp., the largest air freight firm in the world. 

His story, recently shared by Dimensional Fund Advisers, beautifully demonstrates the relationship between ingenuity and the investor.

Back in 1965, in a proposal to his economics professor, the Yale undergraduate suggested an overnight air delivery service for urgently needed items like medicines and computer parts. 

Smith didn't get much support for the idea...

But decided to bring it to life anyway. 

He founded FedEx in 1971 and in April 1973, 14 jets took off with 186 packages destined for 25 cities. 

In hindsight, it wasn't a promising time to launch a venture that required expensive aircraft consuming large quantities of jet fuel. 

Oil prices were on the rise and the US economy had fallen into a deep recession. 

The 1970s were a challenging time for airlines, and FedEx was no exception. 

Despite this, Smith's idea was popular among consumers. 

49 years after its initial deliveries, the company is a global giant with over 650 aircraft. 

It took over two years to make its first profit, yet FedEx became the first start-up in American history to generate over $1 billion in revenue in less than 10 years, without an acquisition or merger. 

For investors, the journey's been just as rewarding. 

The 100 shares purchased at the initial offer price of $24 in 1978, soared to 3,200 shares worth over $718,000 as of May 2022. 

Frederick Smith's idea is just one example of ingenuity that humans have exhibited for centuries. 

Many inventions have compounded into an ever-increasing body of knowledge. 

One innovation often paves the way for others. 

And the benefits are widely dispersed throughout the economy. 

Often in unpredictable ways. 

Apple Inc. became one of the world's most valuable companies based on its clever marriage of the computer and telephone. 

Both users and shareholders of Apple reaped substantial rewards. 

Innovation is unpredictable 

My relative, Sir Samuel Instone started one of the world's first commercial airlines in 1919 (it merged into Imperial, then BOAC and eventually these became British Airways).

He made the world's first inflight phone call.

Flew the first ever horse.

And introduced uniforms for all his flight crews based on military uniforms.

No one thought that commercial air travel would become an enormous industry, compared to what it was back then.

However, innovation doesn't always ensure prosperity (hence all the airline mergers). 

That's why it's sensible to diversify. 

Investors are often tempted to focus their attention on companies that appear poised to benefit from innovation. 

But we can't predict which ideas will prove successful. 

Civilisation is full of innovation and evolution... 

Of curious minds seeking to improve upon existing ways of meeting the needs and wants of the consumer. 

The stock market is an example of such creativity. 

It has a history of rewarding investors for the capital they supply to fund such innovation. 

But, a significant fraction of wealth created in these markets typically only comes from a small number of businesses. 

Therefore, owning a diversified portfolio is the most effective way to participate in the rewards of ingenuity and innovation. 

Diversification also increases the reliability and predictability of investment returns.


Further reading

What will a recession do to you?

Why you shouldn't care what Cathie Wood buys for ARK

What I'm reading #31: Wealth vs. getting wealthier

How to live longer and happier with this financial planning secret

Anyone who will be adding money to the markets for at least the next five years needs to try this test now

Save and invest for a better life, book a call - SAM