(Photo above: The world’s first digital camera, 1975 | courtesy of Kodak Corporation)
Don’t Let Your Investment Portfolio Become a Kodak Moment
Could it really be that a quarter of a century has passed since I graduated from college? This month I will be traveling to Rochester, New York for my twenty five year college reunion. I’m looking forward to getting reacquainted with old friends and walking down memory lane on the picturesque campus of ivy covered buildings. Rochester also happens to be the birthplace to the Eastman Kodak Company founded by George Eastman in 1888.
Just a few years back I created a financial blueprint for a client who had just retired after working as an international businessman for over three decades at Kodak. Our projections showed that between his noteworthy annual pension from Kodak, his social security and his other investments, he and his wife were financially independent and had a very high probability of never outliving their income. Doesn’t this sound like the American dream? Just weeks after completing the couple’s plan, the impossible had truly become a reality for this one time Dow 30 company and largest employer in Rochester declared bankruptcy.
My client informed me in a disheartened tone of disbelief that he had been told not to expect a dime of his pension. This was not the Kodak moment he and his wife had in mind and they were no longer singing Paul Simon’s hit song “Kodachrome.” My client and his spouse now had to restructure their entire financial future in retirement. It is going to be bizarre returning, for my first time, to a Kodak-less Rochester.
How could this have ever happened to such a global powerhouse? In 1996 Kodak had 140,000 employees and a $28 billion market cap. They truly had a monopoly controlling 90 percent of the film market in the United States and 85 percent of the camera market.¹ The company’s tagline—Kodak moment—entered the common vocabulary to describe a personal event that demanded to be recorded for posterity. Here’s some interesting history that I believe lead to their demise.
In 1975 a small group of talented engineers at Kodak developed the first digital camera. It was the size of a toaster and weighed almost nine pounds. It had a resolution of 0.01 megapixels and it took twenty-three seconds to store an image. In the eyes of Kodak brass this invention would be more of a toy than a tool to reshape photography as we knew it.
Kodak was in the business of recording memories but what they failed to realize at the time was that there was not a more convenient and effective way to do so than a digital camera. They felt this technology would undercut their chemical and photographic paper business which would cause the company to compete against itself. Instead they buried the technology.
Their despair didn’t end with the development of the digital camera as next came the smart phone which included a high quality camera causing the standard digital camera to all but vanish. In 2008 one year after the first iPhone – the market no longer existed.
In the 1920’s the average lifespan of an S&P 500 company was sixty-seven years.² Today that number has decreased to 15 years! According to research completed at the Babson School of Business, more than 40 percent of today’s top companies will no longer exist in just a decade ³ What I find even more astonishing is by 2020 more than three quarters of the S&P 500 will be companies that we have not heard of yet.⁴
In October of 2010, a couple of Stanford grads founded Instagram, a company that developed a fast and fun way to share one’s life with family and friends in high resolution. Take a picture or video from a smart phone, chose a filter to transform its look and feel, then post it to Instagram. You can even share it to Facebook and Twitter.
And to top it off, it’s free! Sixteen months later the company was valued at $25 million. By 2012 Instagram for Android was released and downloaded more than a million times in one day. Instagram’s value shot up to $500 million. Just months later in April of 2012, Instagram and its 13 employees were bought by Facebook for $1 billion.⁵
The world is changing right before our eyes. Companies today need to stay nimble and be forward thinking to be dynamically relevant today as well as tomorrow. This very same message also pertains to your investment portfolio. Investment strategies or products that were in vogue yesterday may not make as much sense today. In my opinion mutual funds are the expensive, aged technology of a traditional film camera of the past while ETFs are the high resolution, fifty megapixel tool of the future.
Tax laws seem to change on an annual basis and we never know what the economy, markets and Federal Reserve are going to throw us next. Today, being specialized matters. Working with a team of people who actively seek information and think about these things each day will help you avoid having your own unfortunate Kodak moment and allow you to live the life you’ve always imagined.
David Rosell is President of Rosell Wealth Management in Bend. He is the author of Failure is Not an Option- Creating Certainty in the Uncertainty of Retirement. You may learn more about his book at www.DavidRosell.com or Amazon.com. Ask for David’s book at Costco, Barnes & Noble and in Bend at Newport Market, Cafe Sintra, Bluebird Coffee Shop and Powell’s Books in Portland.
Investment advisory services offered through Rosell Wealth Management, a State Registered Investment Advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC 130 Springside Drive, Ste 300 Akron, Ohio 44333-2431. 800 765-5201. Rosell Wealth Management is a separate entity from ValMark Securities.
¹ Andrew Martin. “Negative Exposure for Kodak” 2011.
² Richard Foster and Sarah Kaplan, Creative Destruction, Why Companies That Are Built to Last Underperform the Markets.
³ Babson Olin School of Business Advertisement, Fast Company, April 2011.
⁴ Richard Foster and Sarah Kaplan, Creative Destruction.
5 Joanna Stern, “Facebook Buys Instagram For $1 Billion,” ABC News, April 27, 2012.
