Futurology and its Impact on Value Investing

July 31, 2020

As we close out the first half of the year, it is good to reflect on the trends that are evolving and slowly becoming engrained in our society and how they might influence our investment philosophy.

It is fair to say the COVID-19 pandemic created paradigm shifts in societal interaction and daily life. The internet continues to expand its hold on the world as we routinely use it for communicating with friends, education, work, streaming movies, religious services, e-commerce, video games, telemedicine, buying houses and banking, among other things. The adaptability and creativity of global companies have resulted in consumer technology adoption at a level never seen before.

Today, companies that are solving society’s problems and keeping our population safe continue to gain market share at an aggressive rate. In healthcare, for example, the vaccines that used to take seven to 10 years to develop may come to market in less than two years. None of these innovations could have been predicted by traditional value investing techniques.1 It is clear times are changing, and investors should change with them.

The current environment reminds me of a school of investing created by T. Rowe Price called “futurology.” The book “Money Masters of our Time” describes futurology as “peering into the fog a bit farther than the crowd” – in other words, imagining what the future is going to look like and investing in the companies that are likely to lead those trends.

One caveat to this approach is that traditional value investing would consider many of these “stocks of the future” overvalued. However, with a deep dive into industry analysis and some thinking outside of the box, the trends that link every piece of the puzzle together are crystal clear. The other piece of this puzzle however, is the rate at which consumers will adopt these trends into their everyday life – that is when we see real change and disruption. As investors, it’s something we should try and get ahead of.

As Jeff Bezos stated at the IA Gala in 2017, “Invention is not disruptive; only customer adoption is disruptive. At Amazon we invented a lot of things that customers did not care about at all, and believe me, they were not disruptive.

Finding companies like Amazon and Tesla has been our priority because they are not afraid of failure. Failure is just part of the process that makes these companies stronger long-term.

It is important to understand trends are changing very quickly. We are monitoring them closely to ensure we don’t miss out on some of the unique opportunities brought about by this rapidly developing climate of innovation.

1. Investopedia (7/26/20) – Value investing

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