Why buy into apps? Why invest in the clo…

Why buy into apps? Why invest in the cloud? Why not industrials and  retail? Why bet against energy and financials? I am often asked why I am  investing in the areas I’m focusing on and why I am ignoring other  sectors of the economy.

Let’s break this concept down.

the single biggest key to successful investing is to  find marketplace revolutions as they are about to develop and to buy the  companies best positioned for those revolutions and to short the  companies that are about to displaced by such revolutions.

Typically, there are two drivers of marketplace revolutions —  technological and political. In 2011, investors need to be positioning  for both types.

As I’ve pointed out before, we’ve never seen a new marketplace  revolution, driven exclusively by technology, like we are witnessing in  the app revolutions and the cloud revolutions. Think back to the impact  on society, the economy and the stock market that the car and train  revolutions had. Same goes for the impact on society, the economy and  the stock market that the radio and television revolutions had. Think  back to the PC revolution. How about the Internet revolution?

Each of those revolutions made fortunes and destroyed centuries-old  business models as they played out. But none of the rises of those  revolutions can compare to the rise of the app/cloud/smartphone/tablet  revolution now starting to play out before your eyes. Let’s look at the  facts:

In 1922, only one household out of 500 had a radio set. By 1926, the  ratio was up to one in twenty. By 1930, saturation of the market was  nearly total. In the mid 1920’s, in just four quarters of trading, the  stock of Radio Corporation of America went from just over $85 a share to  $549. That was as it headed into the bubble that finally popped in  1929.

Ten years later, the TV was hitting the marketplace at the 1939 World’s  Fair. A full eight years later, in 1947, there were fewer than 200,000  sets in America. Five years later, that 200k spiked to 18 million  installed in the U.S.

In 1992, the number of Internet-connected American households was less  than 2 million. Fifteen years later, it was more like 75 million.

And how about today? In 2005, there were about 10 or 20 million  smartphones sold around the world. By 2010, there were close to 300  million smartphones sold around the world. By 2020, there will be more  than one billion smartphones sold EVERY YEAR.

And tablets? In 2009, there were less than a million tablets sold total  in this country alone. In 2013, there will be more than 100 million  tablets sold in this country alone.

By 2020, we’re talking about several billion smartphones and tablets  being used daily around the world. We’ll see trillions of connections  made to the Internet every day, surfing, watching videos, playing games,  chatting, trading and who knows what else.

Can you talk about this kind of growth in any other marketplace in the  world? No, because the world has never seen such marketplaces come  through. And if RCA can go from $85 to $550 in a year and if the radio  marketplace bubbled as companies like RCA were able to raise so much  money to spend on expanding their businesses, then what does that  history lesson say about the probability that we’re heading into an app  marketplace bubble. And if early TV investors created lasting fortunes  as the TV bubble grew and then popped, then what does that say about  early app investors today? And if there were billions to be made in the  Internet bubble before it popped, then what does that say about the  trillions to be made in the app/cloud/smartphone/tablet bubble as it’s  being blown up before it eventually someday pops?

It says we’re right for staying focused on the biggest opportunities  that the world has ever seen. And it means we need to be ready to sell  someday — when this playbook for making fortunes in big bubbles before  they expand says that we’re getting closer to the pop.