Why Technology Can't Kill Value (w/ Mark Yusko)

TL;DR

The rise of technology, AI, and machine learning is changing the investment landscape, with active management and value investing facing challenges in the era of passive investing and short-term thinking.

Transcript

I mean one of the reasons I'm down here in Cayman is is this conference and it's about tech tonic shifts and that you know integration of Technology and AI and machine learning and and all these things that are impacting our business and you think about it I think the staff they threw around this morning was 80% of trades now or machine to machine ... Read More

Key Insights

• 🎰 Technology and AI have revolutionized the investment industry, with the majority of trades now being conducted by machines.
• 😀 Active management and hedge funds are facing challenges as quant jockeys and passive strategies gain popularity.
• 🖤 Value investing remains a powerful long-term strategy, despite its current lack of favor due to excessive liquidity favoring growth and momentum.
• 🥺 Passive investing is not truly passive, as it follows predetermined rules and can lead to inflated prices during periods of excess liquidity.
• 🍉 The focus on short-term performance hampers the adoption of value investing, which prioritizes long-term gains and strategic decision-making.
• 🍉 The investment industry has become more focused on gathering assets and short-term performance rather than being stewards of capital and providing long-term value.
• 🥺 The shift from ownership to rentership in the investment industry has led to shorter holding periods, hindering the ability to benefit from long-term strategies.

Questions & Answers

Q: What impact does the integration of technology have on the investment industry?

The integration of technology, AI, and machine learning has led to a shift toward machine-to-machine trading, with human involvement decreasing. This technology-driven environment has rendered active management and hedge funds less relevant.

Q: Is value investing still a viable strategy?

While short-term strategies driven by excess liquidity favor growth and momentum, value investing remains a sound long-term strategy. Buying undervalued assets eventually results in them reaching their fair value or even going above it.

Q: What is the problem with passive investing?

Passive investing, despite its name, is not truly passive as it follows predetermined rules and cannot think or analyze market conditions. Excessive liquidity can lead to inflated prices in passive investments, creating a reflexive self-perpetuating cycle.

Q: How does short-term thinking hinder value investing?

The focus on short-term performance and the pressure to beat benchmarks like the S&P 500 discourage value investing, which prioritizes buying cheap assets and selling them when they become overpriced over the long term.

Summary & Key Takeaways

• The integration of technology, AI, and machine learning is transforming the investment industry, with 80% of trades now being conducted by machines.

• Active management and hedge funds are being deemed irrelevant, while quant jockeys and passive strategies gain popularity.

• Value investing, a long-term strategy of buying undervalued assets, is perceived as outdated due to excess liquidity favoring growth and momentum.