The key to predicting long-term trends in a fast-paced world
2020 Global Investment Conference Coverage
BY Yaelle Gang | October 28, 2020
The coronavirus pandemic has taught investors that looking even six months ahead can be a challenge, so how can plan sponsors take a longer-term view?
“The further ahead you look, the more variables there are and the more embarrassing your predictions might turn out to be,” said Ben Drury, client services director at Baillie Gifford, when speaking at the Canadian Investment Review’s 2020 Global Investment Conference.
“It’s perhaps unsurprising, therefore, that in the financial industry, most of our effort is spent trying to assign probabilities to near-term events, figuring out the direction of U.S. trade policy or the likely outcome of an upcoming election, for instance. But although these things can seem important, on a 20-year view all of these things are likely to pale into insignificance and instead what really matters are the potential disruptive transformations that could significantly change our lives, economies and societies.”
To help take a longer-term view, plan sponsors shouldn’t focus on the precision of when a change will take place, but instead what the magnitude or impact of the change might be, Drury noted. “When trying to predict change, trying to identify the moment when it becomes mainstream, the tipping point or the ‘when’ is often much harder, but arguably less important than the ‘what.’”
As a starting point, plan sponsors can look at the structural shifts in society that are already underway and set to continue. Further, it’s key to note that the adoption of new technology can be very quick. “The moment that we see technologies come out of the lab and gain a foothold in the real world, their exponential adoption curve has already started and the odds of that technology being ubiquitous a decade or two later has already fallen dramatically,” Drury noted. “And after that, for us [as] investors, it becomes about identifying the resulting winners and losers.”
Drury also emphasized the importance of thinking big and considering the range of industries that are transitioning from fragmented regional players to a smaller number of players operating at a global scale. “For example, over the last decade, we’ve seen this in media with the rise of Netflix, we’ve seen this in advertising with Google and Facebook, and in e-commerce with Amazon. And we believe that the same dynamics, which helped drive success in these companies, are likely to affect a much broader range of industries over the coming decade and beyond.”
Further, optimism is important. “As professionals, and probably just as humans, we have a tendency to perceive radical change as a threat. Especially where we have significant amounts of capital exposed to industries which are starting to see returns come under pressure.”
But many emerging trends will present opportunities for new sources of return. “An approach which tries to capture some of these opportunities at an earlier stage is likely to be more productive and better rewarded than those that simply try to track the indices.”