Multidisciplinary Approach, Technology Revolution, and Ultra-Fast Information Flow

As a portfolio manager and analyst I believe it is important not only to focus on finance and accounting which are of course vital when conducting analysis, but to have a broad multidisciplinary approach which includes an understanding of business strategy, economics, geopolitics, history, demographics, and technology.  A distinguishing characteristic of today's world as compared to say ten years ago is how fast information moves today.  It’s not that the internet wasn’t around then, it’s just that the internet is so much more embedded now, and I think information moves much faster now. Arguably Facebook and Twitter have a lot to do with the change going on in the Middle East today. But I also wonder as to its effect on markets. Could it be that market cycles themselves are being accelerated by this  ultra-fast flow of information? That would make some sense, just as you could argue that the Middle East turbulence we see today was not necessarily caused by the internet, but that the internet accelerated the process. If market cycles are being accelerated that would help to explain both the US stock market's plunge in 2008 as well as the market’s huge bounce back since 2009.  This would bolster the view that the 2009-2011 advance isn't just a brief reprieve like the market’s recovery from the 1929 crash only to take a second leg down.  Rather, information is being digested and integrated more quickly as the markets "see" further ahead.  Today, markets may well be forecasting accelerating social development such as a Middle East moving toward democracy,and the beneficial effects this would have on global economic growth.  Faster information flow has been a hallmark of the world's development over the centuries, but the Internet technology revolution has accelerated it greatly, in Insight's view.

This ultra-fast flow of information could also be accelerating business development in general . There could be a virtuous cycle which develops such that accelerated information flow leads to faster corporate development  which in turn leads to research and development expenditures further enhancing information flow. This should enhance the present value of corporations, as well as providing a tailwind for continuing technological innovation. A wonderful book I’m reading now, Why the West Rules -For Now by Ian Morris expounds the argument that advances in social development (which includes energy capture, organization, war making and information technology) from 2000 to 2050 will rise two times as much as that which occurred in the previous 15,000 years.  Of course the author brings out that there are large risks to this scenario including war, famine, and disease. Still, the possibility of such an advancement is breathtaking, and it can be argued that the world is still in the early stages of the technology revolution heralded by the Internet.  Yes, the problems the financial world faces are very real including developed world debt, a continuing US housing problem, stubbornly high US unemployment, and Chinese inflation.  As clients know, Insight is not dogmatically bullish, having sold significant amounts of stock and raised cash during both 2002 and 2008, based on macroeconomic analysis.  Nevertheless,  the ongoing technology revolution is reason for bullishness, supported by a reasonably valued US stock market chastened by past excesses, and a US government intent on reflating the US stock market, in Insight's view.  Insight has positioned clients portfolios accordingly.

Philip Frank, PhD
President and Portfolio Manager,
Insight Asset Management LLC
e-mail: insight-asset@earthlink.net