In the AI era, the biggest investing mistake may be assuming today’s leaders will still dominate tomorrow.
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Hello, Reader.
If you were to compare human beings to companies, there aren’t many similarities to hang your hat on.
For starters, we are, obviously, alive, and companies are not.
However, companies are living, breathing organisms – they just so happen to subsist on a steady diet of market share gains and/or expanding profit margins.
And also much like us fragile humans, companies enjoy a lifetime of indeterminate length. But their lifespans do eventually come to an end.
Most investors ignore or overlook this important reality. They tend to think of their core investments as “forever stocks.” But that sort of perspective can be a dangerous one – especially now that artificial intelligence is running amok in the global economy.
AI is spawning thousands of such companies, many of which will conquer and replace established companies that may seem indomitable today, if not immortal.
That’s the process an Austro-Hungarian economist by the name of Joseph Schumpeter called “creative destruction”… and it is an inescapable facet of economic lifecycles.
As investors, therefore, we cannot afford to bemoan new technologies like AI; we must embrace them. Companies will come and go, whether we like it or not. So, our mission is to cozy up to the up-and-comers, and steer clear of the down-and-outers.
Unfortunately, because the process of creative destruction resembles a chaotic war zone, we cannot always identify the winners or the losers immediately. But this essential two-part test can help cut through the fog of war to provide clarity and insight, long before the hostilities end.
The test relies on one word: efficiency.
Since the process of creative destruction is a war of efficiency, the creator-victors of this war provide efficiency gains, or utilize them. The “destroyee”-victims do not.
It is the secret sauce that converts upstart companies into world dominators.
So, when analyzing new investment opportunities, or evaluating existing positions in your portfolio, ask yourself these two questions…
- Is this company introducing a significant efficiency boost, relative to the established, market-leading product or service?
- Is this company applying new technologies to boost the efficiency of its operations?
If the answer to either question is “Yes,” congratulations – you’ve probably got a creative winner on your hands.
If the answer to both questions is “Yes,” you’ve definitely got one.
The inverse is also true, of course. Companies that elicit a “No” answer to both questions are heading for the “destroyee” side of the creative-destruction spectrum.
Efficiency gains do not always show up immediately in financial statements, but they do show up eventually in various ways: Expanding profit margins, a growing market share, rising revenues, or all of them at once.
One of America’s most iconic success stories offers a powerful lesson in how efficiency can transform an industry – and create enormous wealth along the way.
But first, let’s take a quick look back at what we covered here at Smart Money last week.
Smart Money Roundup
August 26, 2026
Why Giving Winning Stocks Too Much “Playing Time” Can Cost You
The strongest portfolios aren’t simply built around winning stocks. They’re built around thoughtful allocations to those stocks. Click here to read more.
August 27, 2026
The Best Time to Buy AI? When Everyone’s Afraid of It
We find ourselves in an AI paradox: Backlash towards AI is growing even as its usefulness increases. And that puts us investors in a unique spot. So, I’ll detail three areas where I believe investors should look for opportunity and share a few examples of each.
August 29, 2026
One Stock to Dump Before AI Buries It
AI is slashing the world of commerce into two distinct groups: AI appliers and AI victims. The companies that hope to survive and thrive must adopt and integrate AI technologies as quickly as possible.
Those that fail to do so will cease… and time is of the essence, especially as technology is only becoming more advanced. So, I’ll highlight a stock that isn’t applying today’s breakthrough effectively, giving you a reason to consider dumping it from your portfolio.
August 30, 2026
The Signal That Says Crypto Winter Is Finally Breaking
InvestorPlace crypto expert Luke Lango breaks down Bitcoin’s recent signal, the confirmation still ahead, and why the worst may be behind us. Then, he lets us in on an even bigger story that could rewrite what’s possible for early investors.
Netflix Changed the Game
The established player in the movie rental industry, Blockbuster Inc., operated a worldwide network of movie-rental stores – initially renting VHS tapes and later DVDs.
But then along came a couple of game-changing developments. Netflix Inc. (NFLX) began offering DVDs by mail, while Redbox began opening DVD kiosks in supermarkets and elsewhere.
Although the Netflix mail-order business posed an existential threat to Blockbuster, it chipped away at its market share. Then came the internet to change the game forever. As broadband internet connectivity spread across the U.S., Netflix recognized and seized the opportunity to pivot from DVD rentals to streaming movies online.
Blockbuster did not. In fact, Blockbuster famously rejected an offer from Netflix founders to buy the upstart company for just $50 million. Ten years after that event, Blockbuster filed for bankruptcy.
The lesson here isn’t simply that Netflix beat Blockbuster. It’s that the definition of “efficiency” changed – and Netflix changed with it. What had once been an efficient way to rent a movie suddenly became obsolete as technology created a better way to deliver the same product.
Case studies of corporate successes like Netflix inform the investment process at Fry’s Investment Report. Up and down our portfolio, we find companies that are either introducing new efficiencies, applying new efficiencies, or both.
To learn more about these recommendations, click here.
And that is why the next wave of creative destruction could be so consequential. AI is moving beyond our screens and into cars, robots, factories and other machines. And the biggest opportunities may lie not with the companies getting the attention, but with the suppliers providing the critical pieces that make this revolution possible.
My InvestorPlace colleague Luke Lango will be joining us in your next Smart Money to share more about this shift. So, be sure to keep an eye out in your inbox.
Regards,
Eric Fry
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