Product Lifecycles and Long Term Investing Consequences

Innovation and vision drive change and help form the future, which is why it's important to pay attention to product lifecycles and long term investing consequences if you hold positions in any stocks or funds for the long haul.

Look at the history of the personal computer for example. From the first Apple computer, the Commodore PET computer and others early on, to the way personal computers are today including laptops and tablets, each version and model over the years had a limited product lifecycle.

To stay competitive and financially viable as a company, understanding product lifecycles and and working towards new products with newer technology and product demand is a key to long term success.

As a long term investor it's important to think about the business model, products and services that are offered by the company whose stock you own. This "thinking about" is part of your initial AND ongoing research.

Just because a company has a great product today, doesn't mean it will in a few years, nor does it mean the company will stay on top of their own product lifecycles and innovate with newer designs and technology.

Consider the following company examples that have been affected by poor attention paid to product lifecycle management: 1) Palm 2) Rimm and most recently 3) Eastman Kodak. Take a look at a long term chart of Eastman Kodak below:

Product Lifecycles and Long Term Investing

Palm failed to keep up with technology enough to stay in demand with consumers. I was an early fan of Palm products. I used to carry around a Palm Treo smartphone before smartphones were popular. I remember my family joking about me carrying my "phonebook" around, referring to the size of my Palm Treo. Before that, I had a "Palm Pilot", and still have it today I think.

RIMM has had great products over the years but from an outside point of view, they have also had a limited product line. Having a limited product line is fine when the product is selling like crazy, ie: "crackberry", but problems arise when the competition starts producing products more advanced than yours and then expands their product lines to attract a bigger customer base. You can only attract so many customers with a limited number of products.

Kodak is the latest example. Sadly, the company has survived over 130 years (founded in 1880) but has recently announced they may be filing for bankruptcy protection. At my last check, the stock was trading at $0.38 on January 5, 2012 after trading as high as $89.75 (approx) in February, 1997.

Digital photography for consumers started to become popular in the mid-late 1990's (early adopters) and shortly afterward the stock for Kodak, the historical photographic film maker, began to decline and has been ever since.

At one point in time, Kodak is said to have held 90% (or more) of the market share for photographic film sales. Since then though, that particular product lifecycle has come almost to a complete standstill.

As a lesson for long term investors, consider looking into holding positions of companies who either have infinite product lifecycles or an ever changing product line to keep up with the times.

This doesn't mean that there's not a place for "one-hit-wonder" type of stocks though (or a limited product line). Stocks of companies with potentially limited product lifecycles still can provide value, just remember that it may be for a limited time only and require periodic review, maybe more often than some other holdings.

Another such example from the past is TASER. The stock was a trader's favorite and for a few years, provided fantastic returns, but, take a look at what happened over the long run and imagine being a long term investor:

Taser Long Term Chart



Return From "Product Lifecycles and Long Term Investing Consequences" To "Stock Market Commentary"


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