October 17, 2025
When Nobel Laureates Speak Investors Should Listen
By Nathan Slaughter
And the Nobel Prize for Economic Sciences goes to…
Economic historian Joel Mokyr, who will share the prestigious award with academic colleagues Philippe Aghion and Peter Howitt. Digging into the root causes of sustained economic expansion, this trio was the first to utilize mathematical modeling techniques to help explain and even quantify the abstract concept of "creative destruction."
Drawing on waves of scientific advance and societal progress dating back to the Industrial Revolution, the team's illuminating research shines new light on our understanding of disruptive technologies.
Picture a map from 1765 (when Scottish inventor James Watt patented his steam engine). The natural world looked quite a bit different back then. Over the decades, geologic features have been dramatically altered by the wind, rain and tide. Shorelines have receded, river channels bent, cliffs eroded.
In much the same way, there are powerful forces constantly battering and reshaping the business world. Back in 2009, stalwarts like GE, AT&T, Exxon, and China Construction Bank were all among the world's 10 largest companies (ranked by market cap). Now none of them make the list. In fact, there has been 90% turnover among the rankings — nine of the 10 names have changed.
The relentless pursuit of efficiency inevitably gives way to transformative breakthroughs that can gradually decay (and inevitably destroy) entire industries. Once they crumble and fall, something newer and better is rebuilt in their place. This unyielding state of creative destruction is disorderly and messy, but also critical to continued growth and advancement.
Without it, there is only stagnation.
Innovation is a constant cycle of death and rebirth. Mokyr used the example of weavers losing old jobs and finding new ones when labor-intensive hand looms gave way to cotton mills and textile factories. As investors, we instinctively understand this phenomenon, which is why we place so much importance on protective economic moats – and why we vigilantly watch for the next big disruptive force.
You can see (or hear) it all around us.
Gen Xers like me recall upgrading our Led Zeppelin collections in the early 1980's when vinyl and 8-tracks transitioned into cassette tapes. I still have fond memories of listening to my first Sony Walkman. But it wasn't long before the leap to CD players, with their space-age look and superior sound quality. So off we went to the mall in search of Van Halen's new 5150 album.
But then even CD players took the first step towards obsolescence when a South Korean company introduced the first digital audio MP3 player in 1998. Apple (Nasdaq: AAPL) was quick to spot the potential and immediately laid the groundwork for the iPod. Or maybe you were one of the few (like me) who opted for the competing Microsoft (NSDQ: MSFT) Zune.
Doesn't matter — the entire product category was later supplanted by streaming services such as Spotify and Pandora. Music is no different than anything else. Take almost any product – from golf clubs to video game consoles – and technology has upgraded it over the years… or replaced it entirely.
Today, we are seeing this cycle play out across multiple sectors, giving rise to massive wealth creation. But these developments and product launches don't just happen overnight. They are the result of heavy spending and many tireless R&D hours.
Take Regeneron Pharmaceuticals (NSDQ: REGN). Founded thirty years ago by a group of physician-scientists, Regeneron invests heavily to develop effective biologic treatments for cancer, asthma, and other ailments. Those drugs brought in $14.2 billion in revenue last year, and management dutifully pumped $5.1 billion right back into research & development (R&D).
That means the company is reinvesting one-third of its sales to fuel the discoveries of tomorrow. And those investments are paying off handsomely. Regeneron currently has a robust pipeline of 40 promising candidates awaiting clinical trials and FDA approval – including several potential blockbusters.
Investors don't always appreciate the unsung efforts of professionals toiling away in research labs. But this is the nursery of new ideas and advances.
It stands to reason that tomorrow's winners are on the cusp of big breakthroughs today. There's no better place to begin looking for these future stars than the R&D department – the lifeblood of most organizations. Without enough ideas circulating through the system, even powerful firms can wither up and die.
