For most of us the 21st Century seems to be moving at an accelerated pace, like or not. Steve Jobs at Apple gave us an amazing advance in technology, introducing us to the real “smart phone” in 2007. The iPhone could operate on the internet just like your computer as the internet accommodated connections with 3g speed. Now fast, global communications are a whirlwind and have begun to eclipse traditional methods of exchanging ideas, information, and even commerce (e.g., Amazon, am I right?).
When you consider the shift in technology just in the last 15 years, it must be apparent that information is the “coin of the realm” today. We are engaged in seeking the most important and the most insignificant information about everything...instantly. In your hand you have the capacity to converse by text, picture, video, voice, and email with practically anyone on the planet. You have access to family, education, investing, banking, recreation, instantly in either 144 characters (Twitter) or lengthy papers in Adobe (email or Dropbox), video of all kinds (YouTube), and a host of other means...in your purse or pocket. Just what do you think money managers and financial industry folks are doing with this available capacity?
Truth is advances in technological capacity continue unabated in portfolio management today as we slip into a new generation. We are embarking into uncharted territory in the investing landscape. New aspects of communications are driving data gathering, probability decisions, and results. Imagine having the power to ask a computer a question, it goes out to the world and collects all that data, then places it back in your hands. Oh, right! Your can do that with your smart phone already.
Think about it this way. What if you are a money manager? You have a theory of what is likely to happen in the investing world! What if you could ask for all the data (historic, new, worldwide) about your topic, precisely sorted around more penetrating questions that you design... and instantly you get the outcome probability about your theory? But wait, what if you could command the computer system to continually update the outcome based on concurrent, continuing data streaming into the system? Today all that is available and is increasingly used by the financial industry. It comes under the name of Artificial Intelligence and Deep Learning (i.e., Machine Learning).
Here is a broad representation of common feelings about this concept in the financial services industry:
“We’re in a Digital 2.0 era where people expect access to information and support anytime and anywhere through any device. If you want a tax statement in the middle of the night, for example, you’ll expect to be able to ask Alexa to get that for you.” (Sankaran, V. Chief Investment Officer TD Ameritrade, 2018)
“In a steady bull market investors may feel more comfortable relying solely on technology, but when volatility strikes or the market dips and questions become more complex, people like to know there is a person to turn to,” says Peter deSilva, TD Ameritrade, President of Retail.
“But it’s clear that consumers will take risks willingly if the experience adds value and saves them time.” TD Ameritrade President/CEO Tim Hockey (2018)
The question is, “who are they talking about?” You!
Essentially the advances in technology are just as likely to create portfolios that are largely homogenized (they all look alike) competitively. Truth is that managers have long sought to “beat the indexes” only to be inconsistent and disappointed. If all these professionals now have the breadth of technological support systems and can scan for data, peering probabilistically into the future, what could be the outcome? A logical conclusion is that only increasing volatility and velocity in markets will be the result.
Combine this communications availability with complexities relating to a world adjusting to global trade, transportation, politics, trust, diversity, and cultural aspects. In fact, when tweaking the view to more current health, economic, political, and social conditions, there is little debate about the affect these topics have on investing. Healthcare field is scrambling to contain and find treatments for a pandemic, governments can close entire economies globally, political rancor bridles progress, interest rate lows stymie retirement income, businesses and institutions alter methods and structures dramatically, nationalism reshaping global trade, all finding their way into investment decisions and actions. Connectivity can breed prosperity or controversy, cooperation or contention, certitude or mistrust. As institutions game the investment markets, how do you find a slice of success to reach your goals?
Do not think for one minute, however, that you are powerless in this investing game.
Consider Time, the most important asset.
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MarketWatch (2020) Data retrieved: https://www.marketwatch.com/investing/index/spx?mod=home-page, July 2, 2020.
deSilva, Peter, TD Ameritrade, President of Retail. https://s2.q4cdn.com/437609071/files/doc_news/research/2018
Engen, E. M. & Lehnerth A. (2000). Mutual Funds and the U.S. Equity Markets. Federal Reserve Bulletin: Retrieved from https://www.federalreserve.gov/pubs/bulletin/2000/1200lead.pdf
Hockey, Tim (2018. (2018) The Tech Effect: How the Digital Age Is Changing Investing. Note, President/CEO Tim Hockey of TD Ameritrade. https://s2.q4cdn.com/437609071/files/doc_news/research/2018/TDA_FinTech_ebook.pdf
Rudden, J. (2020). Share of households owning mutual funds in the U.S. 1980-2019 Statista. https://www.statista.com/statistics/246224/mutual-funds-owned-by-american-households/