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The Market and The Future

business man looking out a window

The markets, innovation and where we are headed.

The markets were good to investors in 2013 (TSX is up just shy of 9% for the year) albeit most of the market gains were experienced in the last quarter of the year. Almost all of the North American equity funds experienced returns significantly higher than the index – a direct result of the mutual fund managers expertise and active management.

In my opinion we have moved to the expansion phase of the economic cycle therefore 2014 should be good to investors, The important thing to remember is that market gains or losses tend to happen in significant bursts over a relatively short period of time.
One thing I have noticed about the North American economy is that there a major shift away from traditional industries (manufacturing) to new smaller companies that are engaged in research and development of new technologies. Eighty percent of job growth now comes from companies with fewer than 50 people on the payroll.

I predict that when historians look back at the year 2014 they will realize that this year is significant to mankind and is in fact the beginning of a new era. In the last 150 years we have had several new eras. These are defined as where the majority of the working population is employed – each era is progressing faster and faster.

  • 1860’s -Agricultural age
  • 1900’s -Industrial age
  • 1960’s Computer age
  • 1980’s Information age
  • Now – Technology age

I came to this realization right after I became conscious of how things are going faster and faster and how things are also getting better and better. Let me give you a bit of a history lesson to prove my point. I could use a number of areas to explore but I will limit myself to a discussion of writing

The Earliest Writing

A recent discovery by a German archaeologist uncovered writing at the tomb of King Scorpion the First in Abydos, near Luxor, in Egypt which dates back to 3400 B.C. Until then it was believed that Mesopotamia was the birth place of writing.

Fast forward almost 4,500 years and printed word started with the world’s first movable type printing technology invented and developed in China in the year 1041.

We’ll skip a little further in time to the year 1450 when Johannes Gutenberg designed an improved movable type mechanical printing technology in Germany. Gutenberg developed a printing system by both adapting existing technologies and making inventions of his own.
Move forward another 400 years to the invention of the Typewriter in the 1860s. The typewriter quickly became an indispensable tool for practically all writing other than personal correspondence. They were widely used by professional writers, in offices, and for almost all business correspondence.

In 1962 the first commercial desktop computer was invented by an Italian engineer Pier Giorgio Perotto who worked for a company called Olivetti and the birth of the computer age started. Did you know that the U.S. government used these computers to do the calculations for the Apollo moon landing and the US military used them to plan operations during the Vietnam war.? They were about 1/10th of the computing power of a modern day smart phone.

Skipping forward to 1977 the first successfully marketed personal computer was launched – the Commodore PET. These were further refined until the commodore 64 was launched and it became the single best selling personal computer model of all time with over 17 million sold.

In the PC world a new rule or law was developed called Moore’s law. It became the gospel for computers – “Every 18 months the speed doubles as the physical size of the microchip declines by a half.”

In 2009, mankind reached another milestone. It was the year that everything previously written in history by the human race was doubled. Today, barely five years later, we double everything written by mankind in the matter of months not the 5,409 years that it took the first time. The other interesting development in the written word is the delivery of the written word which is now being challenged by electronic media.

The main reason why many adults and senior citizens prefer reading books is that they were available before TV and Computers. I still prefer to “buy the book” rather than download on a reading device. The thing I like about reading is that while reading, the reader acquires knowledge and improves his/her reading and writing skills. With books the reader gets to visualizes the thing happening in the book in their own way, thus strengthening a person’s imagination. People that read a lot tend to generally be more creative with active minds. The thing I like about books is you can take any corner of your house and start reading since books are portable.

The newer generations will argue that all that I say is applicable to laptops, tablets and electronic readers. But is it?

I agree electronic media expresses and explains its objective far better than books because it visually presents the material with pictures, video, attractive fonts, animation, motion graphics and so on. However, does it promote individual creativity, or develop an individual’s imagination?

I think the jury is out on this.

It’s like play. When I was a kid we roamed the streets with buckets on our heads, blankets around our necks and sticks in our hands – to us we were the Roman Legion planning battles and world dominance. Today a child’s imagination is sadly left up to digital babysitters in the form of game boy and play station. I guess it’s still imagination, but to me it’s a different type.

The Future

Mobile phones:

My first mobile phone (acquired in 1988) was mounted in my car and cost just under $2,000. It was a basic phone by today’s standards but top of the line technology at the time. In the year 2000, cell phones were owned by just 2% of the world’s population, today that number has grown to over 70%. In fact, nomadic farmers in African are using cell phones to determine which markets are more profitable to sell their produce and livestock.

Smart phone technology is about to exponentially grow in all facets in regards to what they do and how they deliver knowledge – the old adage that “knowledge is power” still applies. Smart phones give us access to more information than the president of the United states had at his fingertips less than 15 years ago. (Source: Diamandis, Peter and Steven Kotler Abundance: the future is better than you think)

Indeed all of technology is on the cusp of exponential growth and with it an explosion of new devices and uses to improve the world’s standard of living. All areas of living such as energy, food production, computing power, entertainment and health issues will be affected. New technologies will enable mankind to solve a number of issues that in today’s world have us scratching our heads. Technology allows us to feed the planet with less land and only a small portion of the world’s population dedicating their time to farming.

When I started in this profession we used mortality stats to predict how long a person would live in retirement. At that time the average Canadian Male retiring at age 65 was predicted to live until age 72. Most defined benefit pension plans are based on this assumption. Today we are projected to live into our mid 80’s and with all the new scientific discoveries happening our longevity is predicted to increase beyond 100 year of age within the next 30 years.
It’s a good time to be alive.

Game changers:

3D Printers – This is a technology that can be used to make almost anything:

  • Replacing mechanical parts in remote mining operations
  • Utilization of 3D printing technology for space travel and space stations – even satellite colonies on Mars. They could literally make anything that the mind conceives. That gives a whole new meaning to the phrase “Don’t leave home without it.”
  • I was watching Dr Oz and he was talking about using 3 D printer technology with stem cells to replicate human organs for transplant patients.

Green technology – adapted to the Canadian oil sands (not necessarily solar panels or wind turbines) and natural gas.

Composite Metals – These materials are often used by the aircraft and space industry, the time is now here to adapt these metals to the auto industry to replace steel and lower vehicle weight.

TVs …wait a second that’s an old technology. True, however adapting this old technology with new technology that is available right now will transform your TV into something much more than it is. It will literally deliver almost all of the services and information sources we have delivered to our home and smart TVs will replace almost everything that we use that is connected to the internet. It is happening as you read this.

2014 predictions for the economy:

  • Lower unemployment
  • Moderate accelerating growth
  • Inflation ticking up (just a little)
  • Interest rates increasing

The most important thing for 2014 is that we are now entering a new age for mankind – the technology age. Most of this growth will come from smaller sized companies that are heavily engaged n research and development. These companies are definitely higher risk but they also provide higher returns. The best way to participate in this asset class is through traditional mutual funds as they invest in a well diversified portfolio of these companies that is further diversified by technology and industry – thus you don’t have all your eggs in one basket or in one company. If investing in technology appeals to you let’s sit down and have a discussion as to the appropriate fund and the appropriate % of your portfolio that should be dedicated to this asset class.

The theme for investing in 2014 and beyond is simply:
“All productivity gains and innovation comes from entrepreneurs.”