Part 3 – So what is happening to Stock Market Indices
and What do I do about it?
So are Stock Market indices chasing their tails?
The repeated return to previous values on the indices may simply reflect that we are in a transition period to a whole new raft of technologies and ways of doing things, which has been amplified by the crisis of 2008. It may be that equity performance does return to the style of ever increasing valuations.
Yet if valuations do resume a more constant upward trajectory, it is likely to be in a world of drone deliveries, personalised and personal medicines (2016), solar panels in a plastic film we put on windows and buy from the DIY store (2017), 3D printing (2016), Driverless Cars and Lorries, Drone Ships that are controlled remotely like a military drone (2020), Robotics, Artificial Intelligence, 2 hour flight times to Australia from the Northern Hemisphere and an African population that makes up 25% of the World populationi (currently 16%). In this world, we need to understand which investment management strategies continue to be of value and which needs to be updated.
Driverless car companies will be software companies as the critical part of the vehicle will be the ability to drive on it’s own and to be able to navigate not the actual engine and body shell. These functions (engine and body) will be sub contracted to third party suppliers who may supply many different car brands. The basis for valuing a car company will therefore need to be changed from a manufacturer to a software company.
The Key Performance Indicators (KPIs) of these new companies will be different than before. Take as an example an Artificial Intelligence company. It is a software company. So will it be valued as per a Microsoft or a Google on what it can do, e.g. better search functionality or more efficient operating systems? Certainly to a degree. Yet the most important KPI, especially in the early years of these companies, will probably be what the product cannot do. For example, imagine a robotic vacuum cleaner (available now) being fitted with AI and believing it could become a driverless car. A somewhat humorous example but others are less so. I cannot imagine that many of us would want a robot used for spot welding in the manufacture of cars being fitted with AI and then believing it could be a brain surgeon!! These two examples demonstrate that making sure that the “cannot” element of AI products will probably be as important as what the product “can do” in determining a company’s share price. We will need investment managers that understand these issues and build them into their investment processes.