Back to the Future

These days, we cannot go through a company report without understanding how technology plays a part in the future of their business. Those that have embraced technology and taken action to use it to their advantage have the biggest chance of not only surviving, but growing well into the future.

Recently, I was privileged to travel to San Francisco on a study tour to meet and hear from some well-respected Silicon Valley companies. What I got out of it was not just thought-provoking, but gave real insight of the possibilities of what our industry and other industries could look like 10-20 years from now. The rapid advancement is just too great to ignore. Those that are not prepared for the onslaught in technological change will fall behind and fail. We are not talking about the possibility of robots and machine taking over human work, but rather, as one presenter puts it: “This is not about man against machine. Instead it will be a world between man and machine versus man without machine.” We all just have to face the fact that technology, Artificial Intelligence and whatever else we haven’t even thought about yet, is going to be front and centre of our lives.

A quick history tour before we head back to the future – In 1957, the number 1 stock in the S&P 500 index was American Telephone & Telegraph (AT&T). These days, the top 10 are dominated by companies which were not even in existence at that time.  Apple, Amazon and FaceBook are prime examples of new business models that have skyrocketed up the market capitalisation table through their efficient and dominant use of “online technology platforms” as a business model. Within their platforms, they created a virtual ecosystem that taps into current as well as future businesses to be simply bolted onto the platform, giving them a continuous cycle of cashflow.

So how do we set ourselves up for this onslaught?

Rather than just sit still and be awed by these developments, as investors we can see these changes as opportunities which will disrupt but improve many types of businesses and human lives. While we are beginning to see the dominant players, we are still just taking off from first base on who will ultimately “win” the race to create a balance between human intelligence and machine learning to ultimately make a practical and marketable solution for all walks of life.

A recent magazine article quoted that the first person to become a trillionaire will be the person whose company “perfects” Artificial Intelligence (A.I.).

The CEOs of these companies do not believe that A.I., or more specifically, Artificial “Super-Intelligence” is far away from being a true reality. Mark Zuckerberg (FaceBook), Jeff Bezos (Amazon), Elon Musk (Tesla) all believe that it is possible within 10 years. Bezos added that “artificial intelligence and machine learning in general … it’s probably hard to overstate how big of an impact it is going to have on society over the next 20 years. It is big!”

It is difficult now to build a portfolio where technology companies are not represented in a meaningful way. In most of our clients’ portfolios, we have either a direct or indirect (through funds) exposure to dominant companies at the forefront of the technology race, using their platforms as a trampoline to bigger and better things to come. Names such as FaceBook, Microsoft, Apple, Alphabet (Google parent) and Amazon tend to feature prominently in portfolios. We are also getting more and more exposed to large Chinese owned technology plays such as Alibaba, Tencent (owner of WeChat), JD, Baidu and Autohome, just to name a few. Many of these companies have such huge piles of cash and cashflow that they can also afford of create a “Venture-Capital-like” division, owning stakes in new up-coming businesses that could one day be as large as the parent themselves. Google, Microsoft, Alibaba and Tencent are all growing examples of this.

In summary

Think of successful investing as similar to this analogy provided by a fund manager – In football, a great player does not run to where the ball was, they run to where the ball is going to be. This same idea applies to becoming successful investors.

Whether you are investing into our upcoming Generation Fund or have a be-spoke portfolio (for larger portfolios), technology is likely to play a greater role in the future towards the potential returns of the companies within the funds or portfolios we have designed.

Please feel free to discuss the above or any other financial matters you may have with your advisers.