Transformation, Disruption, Opportunity, and Hype
Global technological transformation and disruptive technologies create extraordinary opportunities – and magnified risks. Headline-grabbing hyperbole dominates each news cycle, and some forecasts and bewildering futuristic projections can mostly be dismissed. However, meaningful substance and catalytic disruptive change are permeating all industries.
A context to understand these developments – a broader, methodical, and disciplined way to think about disruption and transformation- shows that extraordinary opportunities on a highly competitive global scale are emerging.
Artificial intelligence and AI-generated tools, digital assets, blockchain-based businesses, gene editing, and DNA sequencing profoundly impact the world’s most important industries. New technological innovations and platforms enable unprecedented disruption to all business and economic models.
Where’s the Value?
Investment success requires understanding these impacts and grasping many other economic forces and elements, including global economics, game theory, competitive and micro-level analysis, and human behavior and emotions. Stable predictability is becoming increasingly anachronistic.
Every company or industry will either be a disrupter or disrupted. The leading growth companies of today stand an excellent chance to be memories tomorrow. This new world makes stability, defensiveness, and a static competitive advantage less relevant. Looking for “moats” is becoming a fool’s errand. Investing will require more technological expertise, knowledge of significant developments, and an understanding of the accelerating impact permeating the world’s economy.
Innovation is the New Moat
This integrated approach is a more informed and distinctive way to analyze the future. Since investment success ultimately means predicting the future and having the confidence and fortitude to implement those predictions, “wisdom” is a better way to combine a broad range of observations into a new set of knowledge. Wisdom is defined here as an ability to predict the future effectively, and the foundation of knowledge is assembling relevant facts from many sources. This exercise generates better decisions and, therefore, superior returns.
Slow Thinking
Thoughtful observation of complex factors, understanding their interrelation, and predicting the outcome of their interaction is true wisdom. In Daniel Kahneman’s words, “slow thinking.” Breathless and urgent recommendations are usually misguided. Superficial ideas and quick thinking are even worse. Static numerical models are a simplified sideshow intended to turn numerous and dynamic factors into nothing more than a simple and typically misleading regression analysis. This approach is nonsense.
No Simple Formula
The factors influencing any investment’s true value are beyond a simple formula. Extraordinary returns are generated by a combination of factors beyond what “the market” can understand. Today’s market is based on the total number of investment decisions. It reflects consensus thinking but not necessarily an insightful understanding of any investment’s future value. It is a static snapshot, and passive investing or “owning the market” works for passive decisions. Still, it is a flawed and ineffective tool for any active decision-maker who wants to capture the transformative value of industry disruption.
Macro and Micro Converge
Disruptive innovation and technologies, globalization, leadership, fiscal and monetary policy, and other topics are usually relegated to computer science, engineering, economics, or behavioral textbooks. However, inferior performance results from not understanding all the macro and micro elements that influence investment choices, the policies impacting those decisions, the competitive environment, and the leadership qualities essential to excelling within this context.
The best business models cannot overcome trade wars and geopolitics, as the current war-mongering and scare tactics regarding China and the United States illustrate all too well.
The Team is the Thing
When asked what his greatest accomplishment at Apple was, Steve Jobs said it was “putting together the best teams to do innovative work.” It is insufficient to build a team of superstar executives running to chase something “disruptive.” They must be an effective team that creates disruptive opportunities but must also have commercial discipline, competitive understanding, a long-term industry perspective, and the discipline to allocate capital efficiently.
This is no small trick, but that is why these opportunities are rare and generate superior returns. This integrated and comprehensive view is typically ignored – to the decision-maker’s peril. An integrated perspective accounting for these critical factors is essential for sustainable success.
It’s Not a Soundbite
Generalizations and soundbites that can sound clever but are fundamentally meaningless include such noxious quips as “invest in creative destruction” and “disruption and transformation will create wealth” that sound good and tend to be popular but are ultimately useless.
Thinking about a problem and developing a unique and better decision is more important. Specific situations are dynamic and quickly escape a simple formula or broad sweeping conclusions.
General statements are a waste of time, profoundly inefficient, and misleading. They are designed to make the audience feel good without giving them any helpful way to think more deeply about the analysis and conclusions that matter. Along with platitudes, there are no simple formulas, heuristics, or other easy ways to outperform the market.
Complex, Disruptive, and Unpredictable
Deep thinking about the factors that matter is complex, challenging, unique to each situation, and escapes simplicity.
In other words, it takes hard work, discipline, insight, and the assumption of significant risk. Hard work and discipline can mitigate that risk, and insight can more accurately assess opportunities. Disruptive technology, transformational business models, and an extraordinary team make it possible. Finding the combination is rare.