Acceleration of innovation now spells danger for investors
Insync Funds Management Head of Strategy and Distribution, Grant Pearson, says investors need to ensure their managers are keeping up with technology changes.
Wednesday, September 27th 2023, 3:08AM
by Insync
A new app, Threads, built by Instagram which enables the sharing of text updates and joining public conversations, recently reached 100 million users within an astonishing five days.
"This is a powerful demonstration of the lightning speed at which innovation is accelerating," says Insync Funds Management Head of Strategy and Distribution, Grant Pearson. "Make no mistake, the frantic pace of change now spells danger for investors."
For context, Facebook took 4.5 years to reach 100 million users, Instagram took 2.5 years, TikTok achieved it in nine months, and Chat GPT took two months.
"The reason this means big trouble for investors is that they could be in the right company today and, as little as weeks later, be in the wrong company," Pearson says.
The pace of innovation does not just affect pure technology plays.
"All companies could be affected as they all rely on technology of some sort,’ he says. ‘If their competition embraces new technology better and faster, a dominant company today may find its revenues and profits under immediate threat. And let’s not forget brand new competitors for firms that technology has opened the gates to."
Pearson says that while in the past investors had months or even years to discover an emerging technological breakthrough, assess it, seek views, and then act; now they have next to no time and the skills required to do it are often outside the investment industry.
"In fact, the average life span of successful businesses is being compressed into less than 10 years duration,’ he went on to say. ‘This is disruption accelerating at the same time that timeframes are compressing."
Annual increases in computing processing power are now many hundreds of times faster than previous computers which are themselves under five years old.
"Look out further, say six years, and it’s even more profound,’ he says. "Google's latest Sycamore Quantum Computer, testing now with operational status by 2029, is an astonishing 241 million times more powerful than today’s fastest supercomputers!"
In other words, Sycamore can solve in seconds a problem that takes today’s fastest supercomputer 47 years.
"This first iteration of Sycamore is only the ‘Model T’ of what is to come,’ Mr Pearson says. ‘The alarming thing for the investment community is that we are only at the very beginning of this acceleration. It is akin to sitting in a rollercoaster as it has just tipped into its near vertical first run."
Couple this extraordinary increase in power with the advances in AI and Mr Pearson says gargantuan change is afoot, change that will revolutionise our world and turn most industries upside down, along with investor returns.
"Fund managers and researchers need to quickly create robust means to assess and counter the acceleration of technological change and shrinking timeframes, to reduce the threats to returns, as well as better understand which companies will deliver the decent performances of tomorrow," he says.
"Our industry has a reputation for being slow to change, with egos routinely getting in the way of adapting. Investors need to check carefully that their fund managers are very clear as to how these factors impact their investment processes if they are not to be blindsided and saddled with disappointing returns."
Established in July 2009 by Monik Kotecha and Garry Wyatt, Insync Funds Management Pty Ltd (Insync) is a core global equities manager based in Sydney with Equity Trustees as its RE. A high conviction, bottom-up, quality style manager, Insync employs a valuation-based approach, selecting stocks from a concentrated group of global large cap companies. These stocks must meet Insync’s rigorous filters, benchmarks and hurdles, and be beneficiaries of one or more of 16 global megatrends that Insync has identified are key predictors of growth. They must also consistently allocate capital efficiently, and have a high Return on Investment Capital (ROIC). For more info see https://www.insyncfm.com.au/
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