Is historic data/performance going to become less relevant?
Discussion
In many posts on this forum & on other sites I've often read about how historically certain asset classes/funds/markets or whatever have performed over time, often with the implication (either implicit or explicit) that this will continue & hence decisions can be made on the basis of that history. I can plumb numbers into cFIRE (other forecasters are available) & it will tell me the likelihood I will run out of money based on what the markets did in the past.
Is this still relevant, given the incredible rate of change in the world today?
I would suggest that we have never seen such a disruptive rate of change before & certainly not in my lifetime. I'm not talking about stuff like Brexit as that's equivalent to a major event like a war (maybe not in scale, but in being a one-off event). The changes I'm fearing are more those that are going to change whole swathes of industry in a historically short time. As an example, take retailing; surely no one company has ever threatened a single sector like Amazon is doing, & there will never be another Amazon. No other company will ever be able to come in & compete.
It took tens of years for coal mining to slowly decline to a stop. Nokia, at one time the biggest mobile phone company in the world, disappeared in two or three years when Apple came in.
My own industry (broadcasting) has seen such phenomenal changes over the last two years (centered around the move to IP from baseband signals) that many companies, small to large, have vanished or been bought up & the variety of suppliers has greatly reduced. Even those are under threat & it's entirely possible that it will all end up in the Amazon cloud in a few years time & those companies will vanish.
So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
Is this still relevant, given the incredible rate of change in the world today?
I would suggest that we have never seen such a disruptive rate of change before & certainly not in my lifetime. I'm not talking about stuff like Brexit as that's equivalent to a major event like a war (maybe not in scale, but in being a one-off event). The changes I'm fearing are more those that are going to change whole swathes of industry in a historically short time. As an example, take retailing; surely no one company has ever threatened a single sector like Amazon is doing, & there will never be another Amazon. No other company will ever be able to come in & compete.
It took tens of years for coal mining to slowly decline to a stop. Nokia, at one time the biggest mobile phone company in the world, disappeared in two or three years when Apple came in.
My own industry (broadcasting) has seen such phenomenal changes over the last two years (centered around the move to IP from baseband signals) that many companies, small to large, have vanished or been bought up & the variety of suppliers has greatly reduced. Even those are under threat & it's entirely possible that it will all end up in the Amazon cloud in a few years time & those companies will vanish.
So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
Mr Pointy said:
In many posts on this forum & on other sites I've often read about how historically certain asset classes/funds/markets or whatever have performed over time, often with the implication (either implicit or explicit) that this will continue & hence decisions can be made on the basis of that history. I can plumb numbers into cFIRE (other forecasters are available) & it will tell me the likelihood I will run out of money based on what the markets did in the past.
Is this still relevant, given the incredible rate of change in the world today?
I would suggest that we have never seen such a disruptive rate of change before & certainly not in my lifetime. I'm not talking about stuff like Brexit as that's equivalent to a major event like a war (maybe not in scale, but in being a one-off event). The changes I'm fearing are more those that are going to change whole swathes of industry in a historically short time. As an example, take retailing; surely no one company has ever threatened a single sector like Amazon is doing, & there will never be another Amazon. No other company will ever be able to come in & compete.
It took tens of years for coal mining to slowly decline to a stop. Nokia, at one time the biggest mobile phone company in the world, disappeared in two or three years when Apple came in.
My own industry (broadcasting) has seen such phenomenal changes over the last two years (centered around the move to IP from baseband signals) that many companies, small to large, have vanished or been bought up & the variety of suppliers has greatly reduced. Even those are under threat & it's entirely possible that it will all end up in the Amazon cloud in a few years time & those companies will vanish.
So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
If your financial plan contains prudent assumptions (that you revisit annually) I don't think that's a bad place to start. Is this still relevant, given the incredible rate of change in the world today?
I would suggest that we have never seen such a disruptive rate of change before & certainly not in my lifetime. I'm not talking about stuff like Brexit as that's equivalent to a major event like a war (maybe not in scale, but in being a one-off event). The changes I'm fearing are more those that are going to change whole swathes of industry in a historically short time. As an example, take retailing; surely no one company has ever threatened a single sector like Amazon is doing, & there will never be another Amazon. No other company will ever be able to come in & compete.
It took tens of years for coal mining to slowly decline to a stop. Nokia, at one time the biggest mobile phone company in the world, disappeared in two or three years when Apple came in.
My own industry (broadcasting) has seen such phenomenal changes over the last two years (centered around the move to IP from baseband signals) that many companies, small to large, have vanished or been bought up & the variety of suppliers has greatly reduced. Even those are under threat & it's entirely possible that it will all end up in the Amazon cloud in a few years time & those companies will vanish.
So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
Derek Chevalier said:
If your financial plan contains prudent assumptions (that you revisit annually) I don't think that's a bad place to start.
How do you know which assumptions are prudent? They might have been in the past but you must be basing them on something & that might no longer be true.Mr Pointy said:
Derek Chevalier said:
If your financial plan contains prudent assumptions (that you revisit annually) I don't think that's a bad place to start.
How do you know which assumptions are prudent? They might have been in the past but you must be basing them on something & that might no longer be true.Fascinating question and I don't have time to write a long answer. Besides, I'm sure there are fund managers etc reading with deeper understanding.
But the thing is, throughout the last century technologies have shone and burned. So many famous companies became complacent/ didn't embrace successor technologies and withered away. Kodak, Polaroid, RIMM, DEC, Lockheed, many airlines, auto manufacturers......to name a few. Just last week I was listening to a TechStuff podcast on 100 years of RCA. A few see the writing on the wall and adapt, expand even, eg Amazon into AWS, Microsoft successfully transitioning into a SaaS model. Some are acquired or are taken private when there's some life left in them - eg MS disastrous purchase of Nokia. Maybe technological time horizons are shortening - eg think of the lifecycle of the main storage technologies since 1910, starting with shellac/ vinyl. Possibly 'electronics' has shorter lifespan than many other industries - after all, cars haven't changed all that fundamentally over the tears apart from electronic enhancements. Even the mega-techs decline in the face of competition, capex demands and other challenges - Vodafone share price is 1/3rd of its peak at the dotcom bubble. Mark Minervini I believe reckons that when an industry leader topples, there's an 80% chance its share price will fall 50% - and a 50% chance it will fall 80%!
Traditional industries, especially in the UK, eg iron and steel, coal have all withered away or succumbed to global competition. Some have a long drawn out decline, meanwhile chucking off decent cash dividends, eg Royal Mail, M&S (possibly).
Other industries change more slowly and companies manage to remain fairly resilient - eg oil, food and drink, builders, banking, some pharmas (though mergers have been rife), some media.
But despite all this churn and change and obsolescence, what I find surprising is that the major stock market indices haven't delivered too shabby a return over the medium term. A market cap weighted index will suffer when its constituents fall away. This is offset by new entrants to the index, generally more dynamic companies that grow through disruption or technological advantage. There are disruptors even in the UK, eg Rightmove. The major indices will miss out on the stellar growth phase of these companies (when they're too small) but there's still been enough future growth to compensate for the 'falling stars'.
Possibly we're moving into a phase of shorter growth cycles than before (and some see robotics, AI, genetics etc as potentially huge disruptors) but the underlying principles don't change.
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Apologies for this disjointed ramble.
But the thing is, throughout the last century technologies have shone and burned. So many famous companies became complacent/ didn't embrace successor technologies and withered away. Kodak, Polaroid, RIMM, DEC, Lockheed, many airlines, auto manufacturers......to name a few. Just last week I was listening to a TechStuff podcast on 100 years of RCA. A few see the writing on the wall and adapt, expand even, eg Amazon into AWS, Microsoft successfully transitioning into a SaaS model. Some are acquired or are taken private when there's some life left in them - eg MS disastrous purchase of Nokia. Maybe technological time horizons are shortening - eg think of the lifecycle of the main storage technologies since 1910, starting with shellac/ vinyl. Possibly 'electronics' has shorter lifespan than many other industries - after all, cars haven't changed all that fundamentally over the tears apart from electronic enhancements. Even the mega-techs decline in the face of competition, capex demands and other challenges - Vodafone share price is 1/3rd of its peak at the dotcom bubble. Mark Minervini I believe reckons that when an industry leader topples, there's an 80% chance its share price will fall 50% - and a 50% chance it will fall 80%!
Traditional industries, especially in the UK, eg iron and steel, coal have all withered away or succumbed to global competition. Some have a long drawn out decline, meanwhile chucking off decent cash dividends, eg Royal Mail, M&S (possibly).
Other industries change more slowly and companies manage to remain fairly resilient - eg oil, food and drink, builders, banking, some pharmas (though mergers have been rife), some media.
But despite all this churn and change and obsolescence, what I find surprising is that the major stock market indices haven't delivered too shabby a return over the medium term. A market cap weighted index will suffer when its constituents fall away. This is offset by new entrants to the index, generally more dynamic companies that grow through disruption or technological advantage. There are disruptors even in the UK, eg Rightmove. The major indices will miss out on the stellar growth phase of these companies (when they're too small) but there's still been enough future growth to compensate for the 'falling stars'.
Possibly we're moving into a phase of shorter growth cycles than before (and some see robotics, AI, genetics etc as potentially huge disruptors) but the underlying principles don't change.
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Apologies for this disjointed ramble.
Derek Chevalier said:
Mr Pointy said:
Derek Chevalier said:
If your financial plan contains prudent assumptions (that you revisit annually) I don't think that's a bad place to start.
How do you know which assumptions are prudent? They might have been in the past but you must be basing them on something & that might no longer be true.I'm not sure how revisiting my prudent asssumptions would help if the entire basis of any forecasts made is suddenly shown to have changed.
Mr Pointy said:
Derek Chevalier said:
Mr Pointy said:
Derek Chevalier said:
If your financial plan contains prudent assumptions (that you revisit annually) I don't think that's a bad place to start.
How do you know which assumptions are prudent? They might have been in the past but you must be basing them on something & that might no longer be true.I'm not sure how revisiting my prudent asssumptions would help if the entire basis of any forecasts made is suddenly shown to have changed.
- 9 here (and #6 as well)
I'm not sure where you are in the investing lifecycle.
If in accumulation and despite taking prudent assumptions the market returns are way below expectations for a long period of time you will have to make adjustments, which could mean retiring later and/or with a lesser income (or save more). This should be part of your periodic planning.
If in the decumulation phase, part of the retirement planning process would've (hopefully) been to plan (as much as is possible) for your expenditure to be below the safe withdrawal rate (which would've taken into account terrible markets such over the last century or so).
Edited by Derek Chevalier on Monday 18th February 07:27
Mr Pointy said:
A world war would be very bad, but the chances of it happening are extremely low. The chances of the rapid changes I'm talking about actually happening is extremely high/certain so I'd suggest should receive much more attention than the impact of a world war.
The key to investment success is always IMO flexibility and diversification.I don't think the pace of change is faster now than in the past. Some examples of regular, big upheavals since WW2,
- Satellite communications developed
- Oil crisis and rampant inflation
- Japanese cars, TVs etc
- Microchip invented
- Cheap jet aircraft travel
- Free market economics
- Container ships and trucks dominate global trade
- Personal Computer invented
- China undergoes complete change of direction
- Mobile phone networks invented
- Internet invented
- The dot-com crash 2000
- Financial crisis 2008
- iPhone invented
- Trump's trade wars
Mr Pointy said:
<snip>
So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
A large part of me agrees it is all we have. The smaller part expects more rapid change, but fundamentally I feel that barring Trump going nuclear, historical trends stand every chance of bearing up.So: why do you believe that historic data is still valid for planning future investments, or is it that it's all we've got? Or are you in fact already taking this into account & I can stop worrying about it?
- IamNOTaFinancialAdvisor!!
Started with a colleague and I spending a quiet day in the office printing off the useful fact sheet for each fund, to compare 1/3/5/10 year performances.
It was all we had!
We tweaked our choices accordingly.
Over the years since, I have repeated this check on occasion and made adjustments a few times.
Did some analysis recently, & the funds I have now have averaged just over 10% pa for the past 10 years (on average across them all). Cost for funds probably averages 0.4%, ranging from 0.25 to 0.61 on the funds I am in now. Sounds pretty reasonable to me (welcome any comments!)
Last year in August I tweaked again to move 20% into bonds and gilts from the choices...mainly to apply some safety as I approached my mid-50s.
Obviously would have done better to move the lot (!), but since the crunch last Oct, my total invested is back up, having fallen around 10% at one point.
Lucky? Perhaps. Or maybe fair use of historic data at a timely moment.....
In answer to your question “is it still valid?” - I say “yes”.
None of us have a crystal ball.
Yes, the next 20-30 years will see AI/MachineLearning/Robotics take a bunch of jobs from humans, and we may see overall change within industries change at a far more rapid rate, but all we can do is monitor more closely and adapt.
If you are at the decummulation phase, perhaps using a SWR of 3.5-4%, then I would try to plan for bumps in the road ahead that might lower those value...but if things continue okay, then better rises in the good years should outweigh the troughs.
But....I defer to folk like JulianPH & Derek Chevalier who clearly spend far longer in the weeds of this stuff than me!!
Some insightful comments on technological winners/losers this morning by Katie Potts, one of the UK's best known small cap tech managers (Herald Inv Trust):
"Technology disruption is also seeing winners and losers within the sector. The legacy companies are evident - IBM, HP, Oracle, Blackberry to name a few. In particular, processing power and storage is migrating to the big datacentre companies dominated by Amazon Web Services and Microsoft Azure, followed by Google and Alibaba. These companies are disintermediating the branded companies such as HP and IBM.
There was a twenty-year period when food retailers outperformed food manufacturers as powerful buying chains squeezed manufacturers margins compared to the weaker buying power of the corner shop. This is happening in computer infrastructure. For Waitrose see Microsoft, for Tesco see Amazon Web Services and for Aldi see Alibaba?
Interestingly IBM was the legacy mainframe computer company that survived the move to client server PC based computing, but is now floundering. Microsoft and Intel were the winners in the PC world. Microsoft has conspicuously succeeded in being the legacy PC company to survive the transition to the datacentre world. The jury is out on Intel, only because its near monopoly position in microprocessors for PCs and servers is now being challenged by AMD and GPUs, and it is being squeezed by the 'supermarket' buying power of the big four datacentre companies.
Furthermore, with the growth in server applications powerful computing can be accessed on battery powered phones and tablets, which do not use X86 architecture, but are ARM based. The companies mentioned here are all larger than this Company's small capitalisation remit, but they are hugely relevant to the small company world. The ability to rent scalable processing power, storage and software is collapsing the cost, and more importantly the capital requirements for small companies. We see this as a driver to global economic growth akin to collapsing oil prices.
It is only in the last few years that the consumer, the enterprise and Government have all been networked, and soon vehicles will be too. The network roll-out for higher speeds continues but is ex-growth. The applications used on the network are far from mature. Faster, cheaper processing power is enabling artificial intelligence to be used commercially, which will have further profound disruptive effects."
Full report here has many other thoughtful comments https://www.investegate.co.uk/herald-inv-trust-plc... Obviously with an active remit we hope she continues to stay on top of these global trends.
"Technology disruption is also seeing winners and losers within the sector. The legacy companies are evident - IBM, HP, Oracle, Blackberry to name a few. In particular, processing power and storage is migrating to the big datacentre companies dominated by Amazon Web Services and Microsoft Azure, followed by Google and Alibaba. These companies are disintermediating the branded companies such as HP and IBM.
There was a twenty-year period when food retailers outperformed food manufacturers as powerful buying chains squeezed manufacturers margins compared to the weaker buying power of the corner shop. This is happening in computer infrastructure. For Waitrose see Microsoft, for Tesco see Amazon Web Services and for Aldi see Alibaba?
Interestingly IBM was the legacy mainframe computer company that survived the move to client server PC based computing, but is now floundering. Microsoft and Intel were the winners in the PC world. Microsoft has conspicuously succeeded in being the legacy PC company to survive the transition to the datacentre world. The jury is out on Intel, only because its near monopoly position in microprocessors for PCs and servers is now being challenged by AMD and GPUs, and it is being squeezed by the 'supermarket' buying power of the big four datacentre companies.
Furthermore, with the growth in server applications powerful computing can be accessed on battery powered phones and tablets, which do not use X86 architecture, but are ARM based. The companies mentioned here are all larger than this Company's small capitalisation remit, but they are hugely relevant to the small company world. The ability to rent scalable processing power, storage and software is collapsing the cost, and more importantly the capital requirements for small companies. We see this as a driver to global economic growth akin to collapsing oil prices.
It is only in the last few years that the consumer, the enterprise and Government have all been networked, and soon vehicles will be too. The network roll-out for higher speeds continues but is ex-growth. The applications used on the network are far from mature. Faster, cheaper processing power is enabling artificial intelligence to be used commercially, which will have further profound disruptive effects."
Full report here has many other thoughtful comments https://www.investegate.co.uk/herald-inv-trust-plc... Obviously with an active remit we hope she continues to stay on top of these global trends.
millen said:
Fascinating question and I don't have time to write a long answer. Besides, I'm sure there are fund managers etc reading with deeper understanding.
But the thing is, throughout the last century technologies have shone and burned. So many famous companies became complacent/ didn't embrace successor technologies and withered away. Kodak, Polaroid, RIMM, DEC, Lockheed, many airlines, auto manufacturers......to name a few. Just last week I was listening to a TechStuff podcast on 100 years of RCA. A few see the writing on the wall and adapt, expand even, eg Amazon into AWS, Microsoft successfully transitioning into a SaaS model. Some are acquired or are taken private when there's some life left in them - eg MS disastrous purchase of Nokia. Maybe technological time horizons are shortening - eg think of the lifecycle of the main storage technologies since 1910, starting with shellac/ vinyl. Possibly 'electronics' has shorter lifespan than many other industries - after all, cars haven't changed all that fundamentally over the tears apart from electronic enhancements. Even the mega-techs decline in the face of competition, capex demands and other challenges - Vodafone share price is 1/3rd of its peak at the dotcom bubble. Mark Minervini I believe reckons that when an industry leader topples, there's an 80% chance its share price will fall 50% - and a 50% chance it will fall 80%!
Traditional industries, especially in the UK, eg iron and steel, coal have all withered away or succumbed to global competition. Some have a long drawn out decline, meanwhile chucking off decent cash dividends, eg Royal Mail, M&S (possibly).
Other industries change more slowly and companies manage to remain fairly resilient - eg oil, food and drink, builders, banking, some pharmas (though mergers have been rife), some media.
But despite all this churn and change and obsolescence, what I find surprising is that the major stock market indices haven't delivered too shabby a return over the medium term. A market cap weighted index will suffer when its constituents fall away. This is offset by new entrants to the index, generally more dynamic companies that grow through disruption or technological advantage. There are disruptors even in the UK, eg Rightmove. The major indices will miss out on the stellar growth phase of these companies (when they're too small) but there's still been enough future growth to compensate for the 'falling stars'.
Possibly we're moving into a phase of shorter growth cycles than before (and some see robotics, AI, genetics etc as potentially huge disruptors) but the underlying principles don't change.
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Apologies for this disjointed ramble.
Really interesting post, and interesting topic too.But the thing is, throughout the last century technologies have shone and burned. So many famous companies became complacent/ didn't embrace successor technologies and withered away. Kodak, Polaroid, RIMM, DEC, Lockheed, many airlines, auto manufacturers......to name a few. Just last week I was listening to a TechStuff podcast on 100 years of RCA. A few see the writing on the wall and adapt, expand even, eg Amazon into AWS, Microsoft successfully transitioning into a SaaS model. Some are acquired or are taken private when there's some life left in them - eg MS disastrous purchase of Nokia. Maybe technological time horizons are shortening - eg think of the lifecycle of the main storage technologies since 1910, starting with shellac/ vinyl. Possibly 'electronics' has shorter lifespan than many other industries - after all, cars haven't changed all that fundamentally over the tears apart from electronic enhancements. Even the mega-techs decline in the face of competition, capex demands and other challenges - Vodafone share price is 1/3rd of its peak at the dotcom bubble. Mark Minervini I believe reckons that when an industry leader topples, there's an 80% chance its share price will fall 50% - and a 50% chance it will fall 80%!
Traditional industries, especially in the UK, eg iron and steel, coal have all withered away or succumbed to global competition. Some have a long drawn out decline, meanwhile chucking off decent cash dividends, eg Royal Mail, M&S (possibly).
Other industries change more slowly and companies manage to remain fairly resilient - eg oil, food and drink, builders, banking, some pharmas (though mergers have been rife), some media.
But despite all this churn and change and obsolescence, what I find surprising is that the major stock market indices haven't delivered too shabby a return over the medium term. A market cap weighted index will suffer when its constituents fall away. This is offset by new entrants to the index, generally more dynamic companies that grow through disruption or technological advantage. There are disruptors even in the UK, eg Rightmove. The major indices will miss out on the stellar growth phase of these companies (when they're too small) but there's still been enough future growth to compensate for the 'falling stars'.
Possibly we're moving into a phase of shorter growth cycles than before (and some see robotics, AI, genetics etc as potentially huge disruptors) but the underlying principles don't change.
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Apologies for this disjointed ramble.
I think in answering the headline post, then for me, the answer is “no”. The aggregation of data, the breadth of that aggregation, the historical analysis, the pre/post trends...well it won’t stop, and it will only be used to affect better decisoning. What is that Santayana said, something about if you don’t remember the past, you’re doomed to repeat it or something?
The problem with a lot of fund management and IB analysis is that a) there’s often not much deeper interpretation of how a company, or industry even, fundamentally operates, and b) there aren’t that many people who get all the behavioural economics at play off the back of it.
Lots of analysts will happily repackage what is broadly common sense stuff, but it’s a bit “2d”. Take attitudes to the ‘cloud’ and how certain companies look like current winners or losers. It’s just too lazy to say AWS, MS, Google are, and will be the winners, and IBM, Oracle, HP etc will lose. Apart from the potential fact that legacy technology companies might actually form part of the infra/software stack to provide that cloud offering, there are all the difficult decisions corporate CIOs may have to navigate to move precious client/customer/competitor data out of their own sites (which may be heavily supported by those legacy outfits) with all the attendant compliance and jurisdictional issues. Where does that leave the uptake of the ‘cloud’ for really large companies (where the big $ wins are for the likes of AWS etc) and what’s the net effect on the legacy incumbents and how might they respond to that threat? That’s just for starters. But in essence I’m sure you see my point. Not all of the game theory is fully delved into.
“It’s not bad for a quant, but that’s a dog with different fleas....tell me something I don’t know...”
Drilling in further, your average analyst just won’t have operational experience. That doesn’t necessarily mean they won’t know what another job looks like in an earlier part of their career, but if you’re assessing a big company, and you’re burying your head in bland reports or reviewing the official positions of the executive team, you’re just looking at sanitised info. A CEO can talk blithely about the beautiful culture and effectiveness of his operation, but if you had a realistic understanding of how far removed they were from things happening 3/4 tiers below them in the hierarchy, across thousands of staff, then you’d probably come to a more enlightened conclusion as to how well things are running, or ability to deliver on stated goals, or just, you know, not completely drop the ball.
There’s also remarkably less analysis given to ‘response’. As in company x or industry y is going that way. Great. But do you expect everyone to stand still? Do you just expect, say IBM, to die and roll over?
It was only like yesterday that Snapchat was the next big thing, the darling being led to their wonderful IPO wedding. Ha! Everyone waiting for the rewards, believing that millennials are the only market in town worthy of focus and surely someone will crack the monetisation challenge that all these new companies will face. Result? Only the bulge brackets came out of it as winning, with the likes of Goldman and MS gaining underwriting fees. The instituational investor group all took a proper bath.
Lots of the investment community gaze on what’s sexy now. Not what will remain sexy going forward. If an investor in a company can lucidly explain how they could develop that corporate’s strategy to promote value, then they’ve done the hard yards.
Edited by tigerkoi on Wednesday 20th February 22:02
millen said:
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Why do you find it odd that few, if any fund managers achieve consistent outperformance? They are all equally bright with access to the same data. It's a brutal game that cannot be won.Factor investing, can, in theory, provide outperformance but an investor must be prepared for long periods of underperformance.
Derek Chevalier said:
millen said:
A more interesting thought is that if we could screen out the 'declining dinosaurs' from an index then surely the residue will exhibit even stronger returns? That's I suppose entering the realm of 'factor investing' and the curious thing is few investment managers actually achieve durable out-performance of the poor old, warts and all index. Fund managers are not stupid (though many don't have genuine industry or commercial experience) but I do find this odd!
Why do you find it odd that few, if any fund managers achieve consistent outperformance? They are all equally bright with access to the same data. It's a brutal game that cannot be won.Factor investing, can, in theory, provide outperformance but an investor must be prepared for long periods of underperformance.
tigerkoi said:
Really interesting post, and interesting topic too.
I think in answering the headline post, then for me, the answer is “no”. The aggregation of data, the breadth of that aggregation, the historical analysis, the pre/post trends...well it won’t stop, and it will only be used to affect better decisoning. What is that Santayana said, something about if you don’t remember the past, you’re doomed to repeat it or something?
The problem with a lot of fund management and IB analysis is that a) there’s often not much deeper interpretation of how a company, or industry even, fundamentally operates, and b) there aren’t that many people who get all the behavioural economics at play off the back of it.
Lots of analysts will happily repackage what is broadly common sense stuff, but it’s a bit “2d”. Take attitudes to the ‘cloud’ and how certain companies look like current winners or losers. It’s just too lazy to say AWS, MS, Google are, and will be the winners, and IBM, Oracle, HP etc will lose. Apart from the potential fact that legacy technology companies might actually form part of the infra/software stack to provide that cloud offering, there are all the difficult decisions corporate CIOs may have to navigate to move precious client/customer/competitor data out of their own sites (which may be heavily supported by those legacy outfits) with all the attendant compliance and jurisdictional issues. Where does that leave the uptake of the ‘cloud’ for really large companies (where the big $ wins are for the likes of AWS etc) and what’s the net effect on the legacy incumbents and how might they respond to that threat? That’s just for starters. But in essence I’m sure you see my point. Not all of the game theory is fully delved into.
“It’s not bad for a quant, but that’s a dog with different fleas....tell me something I don’t know...”
Drilling in further, your average analyst just won’t have operational experience. That doesn’t necessarily mean they won’t know what another job looks like in an earlier part of their career, but if you’re assessing a big company, and you’re burying your head in bland reports or reviewing the official positions of the executive team, you’re just looking at sanitised info. A CEO can talk blithely about the beautiful culture and effectiveness of his operation, but if you had a realistic understanding of how far removed they were from things happening 3/4 tiers below them in the hierarchy, across thousands of staff, then you’d probably come to a more enlightened conclusion as to how well things are running, or ability to deliver on stated goals, or just, you know, not completely drop the ball.
There’s also remarkably less analysis given to ‘response’. As in company x or industry y is going that way. Great. But do you expect everyone to stand still? Do you just expect, say IBM, to die and roll over?
It was only like yesterday that Snapchat was the next big thing, the darling being led to their wonderful IPO wedding. Ha! Everyone waiting for the rewards, believing that millennials are the only market in town worthy of focus and surely someone will crack the monetisation challenge that all these new companies will face. Result? Only the bulge brackets came out of it as winning, with the likes of Goldman and MS gaining underwriting fees. The instituational investor group all took a proper bath.
Lots of the investment community gaze on what’s sexy now. Not what will remain sexy going forward. If an investor in a company can lucidly explain how they could develop that corporate’s strategy to promote value, then they’ve done the hard yards.
I think in answering the headline post, then for me, the answer is “no”. The aggregation of data, the breadth of that aggregation, the historical analysis, the pre/post trends...well it won’t stop, and it will only be used to affect better decisoning. What is that Santayana said, something about if you don’t remember the past, you’re doomed to repeat it or something?
The problem with a lot of fund management and IB analysis is that a) there’s often not much deeper interpretation of how a company, or industry even, fundamentally operates, and b) there aren’t that many people who get all the behavioural economics at play off the back of it.
Lots of analysts will happily repackage what is broadly common sense stuff, but it’s a bit “2d”. Take attitudes to the ‘cloud’ and how certain companies look like current winners or losers. It’s just too lazy to say AWS, MS, Google are, and will be the winners, and IBM, Oracle, HP etc will lose. Apart from the potential fact that legacy technology companies might actually form part of the infra/software stack to provide that cloud offering, there are all the difficult decisions corporate CIOs may have to navigate to move precious client/customer/competitor data out of their own sites (which may be heavily supported by those legacy outfits) with all the attendant compliance and jurisdictional issues. Where does that leave the uptake of the ‘cloud’ for really large companies (where the big $ wins are for the likes of AWS etc) and what’s the net effect on the legacy incumbents and how might they respond to that threat? That’s just for starters. But in essence I’m sure you see my point. Not all of the game theory is fully delved into.
“It’s not bad for a quant, but that’s a dog with different fleas....tell me something I don’t know...”
Drilling in further, your average analyst just won’t have operational experience. That doesn’t necessarily mean they won’t know what another job looks like in an earlier part of their career, but if you’re assessing a big company, and you’re burying your head in bland reports or reviewing the official positions of the executive team, you’re just looking at sanitised info. A CEO can talk blithely about the beautiful culture and effectiveness of his operation, but if you had a realistic understanding of how far removed they were from things happening 3/4 tiers below them in the hierarchy, across thousands of staff, then you’d probably come to a more enlightened conclusion as to how well things are running, or ability to deliver on stated goals, or just, you know, not completely drop the ball.
There’s also remarkably less analysis given to ‘response’. As in company x or industry y is going that way. Great. But do you expect everyone to stand still? Do you just expect, say IBM, to die and roll over?
It was only like yesterday that Snapchat was the next big thing, the darling being led to their wonderful IPO wedding. Ha! Everyone waiting for the rewards, believing that millennials are the only market in town worthy of focus and surely someone will crack the monetisation challenge that all these new companies will face. Result? Only the bulge brackets came out of it as winning, with the likes of Goldman and MS gaining underwriting fees. The instituational investor group all took a proper bath.
Lots of the investment community gaze on what’s sexy now. Not what will remain sexy going forward. If an investor in a company can lucidly explain how they could develop that corporate’s strategy to promote value, then they’ve done the hard yards.
Edited by tigerkoi on Wednesday 20th February 22:02
Spot on! There is a LOT of lazy journalism in IB Analysis of the Tech sector.
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