The Take

The Era of Exponential12/10/16

QUT Finance Student and financial planner at Life Balance Financial Professionals, James Marriott, provides this week’s Take:

Once upon a time, business as usual was good enough. However, where we are going; good enough is dead. We live in an era where technology inspired by last century’s Sci-Fi fantasies are quickly becoming real. Virtual reality, driverless cars, advances in quantum computing, artificial intelligence and biomedical science are all promises of the future. A promise to keep us living healthier and safer for longer. But what are the realities of the future?

For investors and money managers, which pretty much covers all of us here in Australia thanks to superannuation, the era of exponential is changing and challenging traditional methods of investing. In many ways this kind of sentiment flies in the face of some of history’s greatest investors such as Sir John Templeton, who was famously quoted saying, “The four most dangerous words in investing are, ‘this time it’s different.’”

In a letter to investors in June this year, CEO of the Sydney-based Magellan Global Fund, Hamish Douglas, cautiously challenged Templeton’s advice, stating that humanity may be on the brink of a new technological era. He went on to write that the machine age could be more significant than the industrial revolution, and believes that it would be neglectful to ignore the technological developments that are almost certain to provide substantial threats, and opportunities, for businesses.

The threat of technological efficiency versus human ability is a reality that hits close to home for the active investment manager. On a daily basis the active manager faces algorithmic, high-frequency trading programs designed to counter and surpass their every move, while in the process making markets more efficient and less exploitable. Every day these machines get smarter, better, faster and stronger. The question is will they one day be able to do the job better? The answer is likely to be ‘yes’.

Ray Kurzweil, director of engineering at Google, anticipates that by 2029 robots will have reached human levels of intelligence. Oliver Cann of the World Economic Forum estimates that over the next 5 years, a net loss of over 5 million jobs will occur in 15 major developed and emerging economies due to technological advances. Many experts predict this trend to compound over the years. According to the Australian Future Workforce report, over 40% of today’s jobs are at risk due to computerization and automation by 2030.

Is your jaw on the floor yet? Let’s go a little deeper. The era of exponential isn’t simply limited to technological change. What is the cost of progress? Consider Sir Isaac Newton’s law of motion, that for every action there is an equal and opposite reaction. Exponential technological growth has had side effects over the last 100 years. Problems such as global warming and an unsustainable boom in human population are just two examples of the monumental challenges facing our generation.

So how do you get on the right side of the technological tidal wave that’s coming? What’s the opportunity? That perhaps is a question too large for this author to answer in this short article. However, all reports clearly indicate that those who embrace technology and lifelong education are probably going to do just fine.

Business as usual is no longer good enough. The era of exponential promises to change the course of human history and I think that if we do right by people, the planet, nourish our minds and innovate, we may be on the verge of a very exciting future indeed.