The Latest Culprit
Investors are overwhelmed by the availability of investment providers, strategies, and products. Too much choice can be counter-productive, causing “paralysis by analysis.” The latest culprit: “thematic” investing.
The foundation of thematic investing is the early identification of emerging, macro trends. Trends can take different forms, to include societal (ex. aging global population) or disruptive (ex. innovative technologies). Trends can be short- or long-lived, even playing out over decades.
In hindsight it is easy to spot megatrends. Consider these trends from the last century: industrialization, automotive and air travel, atomic energy, globalization, longevity, information technology, cellular and satellite communication. It is challenging to see what comes next.
RIP!
There is an academic discipline, Futures Studies, which focuses on the study of social, political, and technical trends to make predictions about the future. (I took a Futures Studies course for my master’s degree.) Last year, the Biomedical Research Foundation of Northwest Louisiana hosted New York Times bestselling author and futurist, Peter Zeihan.
Assuming one can successfully trend-spot, the trial for the investor is how to make money on the insight. This is especially true of innovative technologies. Many companies jump into the fray, but only a handful survive. Remember Betamax VCRs? Sony invented the “Beta” VCR and held a 100% market share for one year until it succumbed to an inferior VCR format: VHS. The Palm Pilot personal digital assistant and Blackberry smart phone were outstanding and pioneering products. RIP!
Trend sustainability ebbs and flows. Often, investors get lured in only after marketers get involved. What do I mean? Wall Street responds with new products targeting the trend after, not in anticipation of, demand. Here are some examples: 3D printing, cannabis, space exploration, blockchain, ESG. The viability and applicability of the themes arguably remain intact, but the theme-focused investment products have so far been duds. What is hot now? AI.
Accountability
Another issue I see in the industry is the prominence of prediction-making over money-making: charlatanism. Social media enables anyone to say anything without accountability. For example, the demise of the US Dollar has been widely prophesied since the 2008 Credit Crisis. That prediction has not aged well, but it persists. Who perpetuates it? People who profit from fearmongering, ex. transactional gold dealers. Hmmm.
When you manage other people’s money, your job – what you are paid for – is to make money, not predictions, for clients. Investment performance numbers serve as the ultimate arbiter of accountability.
About the Author
Bill McCollum is an investment advisor representative with Eagle Financial, a Wealthcare company. Investment advice offered through Wealthcare Advisory Partners, LLC, (“WCAP”). WCAP is a Registered Investment Advisor with the U.S. Securities and Exchange Commission. Investing involves risk, including potential loss of principal involved. Past performance is not a reliable indicator of future results. Not all strategies are suitable for all investors.
Bill McCollum
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