There is evidence to show that technological development is progressing at such a rate that it may be nearing a tipping point where it could significantly disrupt businesses with intellectual capital, which could have sizeable investment implications.
Such was the prediction from Magellan Financial Group co-founder and chief executive, Hamish Douglass, who told an investment lunch briefing yesterday it was vital to distinguish between businesses that were immune to disruption and others that would crumble from it.
“It would appear to be in this technological arms race that they continue to accrue more and more competitive advantages, which probably means more and more services. There will be new businesses we haven’t even thought of,” Douglass said.
“If you think about driverless cars and there could be a mass reduction in the number of cars manufactured, car manufacturers suffer massive disruption risk in the future,” Douglass said.
Investors should also think about the pace of disruption and should predict the time scale of when different businesses would potentially be impacted when deciding where to invest.
“There’s no use in saying something could get disrupted in the future like a pharmaceutical company. If that happens 30 or 40 years in the future that we don’t need any drugs anymore because we’ve solved everything… not investing in them in the next 30 years for a 30-year risk is insanity because you could make a lot of money in the next decade,” he said.
Rapid advances in technology could lead to mass reductions in costs of goods and services over an 18-20 year timeframe, which could lead to lower inflation over the next long-term cycle due to significant labour displacement.
“What does that all mean? It probably means lower interest rates. And why is that relevant? Because it affects what businesses are worth in the long-term,” Douglass said.
Growth rates in emerging markets could also change over the next 20 years as hundreds of millions of jobs disappeared in the market from their export engines, he said.
While Magellan had one technology platform business in their top 10 of invested companies a decade ago (Microsoft), they now had five of the top 10 market cap companies that were technology platform businesses.
