Navigating the great wealth transfer

So much has happened this year that the events of 2023 feel like ancient history.

It was only last year that Nvidia slammed into investors’ consciousness, as AI investment propelled the company above $1 trillion in size. Yet now, Nvidia is worth more than $3.5 trillion …

And in 2023, Elon Musk was largely getting attention for his business activities - about this time last year he was swearing at corporations who were refusing to advertise on Twitter. Sorry, sorry, sorry, I mean X (the rebrand happened in July 2023). As of today, he’s apparently an election-winning political genius, and part of the US government.

Or what about the fact that in spring 2023, on the back of interest rate rises (and a few other issues, to be fair), four banks collapsed; including Credit Suisse and Silicon Valley Bank. A year on, and most bank stocks are up more than 50%.

With the bank bailouts, there was one standout moment for me.

In the immediate aftermath of the crisis, the Vice-Chairman of the Federal Deposit Insurance Corporation – the bit of the US government charged with overseeing the safety of banks for customers – placed the 2023 runs on the banks in their historical context in an official statement.

Using a quote from The Wire: “Game’s the same. Just got more fierce.”

So why do I remember that so clearly, given everything that’s happened since?

It’s not simply because I think The Wire still stands the test of time as one of the greatest TV shows ever (sorry Breaking Bad fans, that’s just my view). And it’s not just that I find it extremely funny to think of a US bank regulator quoting drug lord Slim Charles to a committee of baffled faces (and including a YouTube link in the footnotes, for context!).

It’s the fact that I think the sentiment - “The same … more fierce” - can be applied to a lot of what’s going on in the investment industry at the moment.

Cash(is)back

Cash. Is. Back. For maybe 13 years cash - the default asset - didn’t do the job for clients. In fact, cash did nothing at all. So, lots of the investment industry got used to not having to even make a case for taking risk.

If a client wanted a return, they had to jump on board a risky boat of some kind; all that mattered was choosing which boat. If you had a half decent boat, you got some passengers. Now though, investment firms don’t just have to worry about losing passengers to another boat (crypto = pirate ships in this analogy).

The worry is that for a large chunk of clients, cash is now delivering a tangible return. Suddenly, staying on shore is an option that makes a lot of psychological sense.

Forget the “invest with us” pitch - now we need to persuade people of the need to invest at all. Game got more fierce.

High tech = low cost of entry = competition

A few decades ago, building an investment team (or a bank, or a pension provider) took time and a tonnnnnne of money. There weren’t many boats, plenty of passengers, and comparing different cruising experiences was tough.

But now technology has made investing far more accessible. From retail investors to small boutiques to large firms, everyone is now able to access a pretty similar set of tools for a pretty similar price.

And so (and it’s absolutely a good thing!), there are lots of smaller craft launching every day, advertising a better/smoother/faster/more exciting journey. There’s competition. Game got more fierce.

Information overload

Making any decision needs data. Doesn’t matter if it’s a personal decision – choosing lunch based on how hungry you are and what you’re having for dinner; that’s data – or if it’s an investment decision - comparing a company to it’s competitors and how efficient its balance sheet is; also data.

The problem is that the amount of data that the world produces has exploded. In fact exploded isn’t a big enough word. In 2010, the world produced around 2 zettabytes of information. That’s 2,000,000,000,000 gigabytes. This year, the number is going to be around 147 zettabytes; there are no good analogies for how much data that is. I’ll just note a horrifying recent estimate that globally, around 231.4 million emails are sent every minute.

The information world has, in 15 years, fundamentally changed. And is still doing so. But economists and investors are, in most cases, fumbling around using the same ways of thinking and interacting and behaving as we have for the past hundred years (or more!). There’s plenty of noise about AI, but walk into any office in the City today and it doesn’t look too different from 20 years ago …

Data has gone supernova, and the finance world hasn’t kept up. Game got more fierce.

How to play?

As investment managers, it’s on us to adapt to the new environment. More Slim Charles wisdom: “The thing about the old days … is they the old days”. But we think there are some lessons to learn from the old days.

And what we think is going to matter more than ever in a high cash rate, high tech and high competition world … is personal connection.

Personal connection lets us entertain our clients as well as inform them. It lets them trust us to cut through the noise, and believe in us when markets wobble (which will happen). Look at it this way – if there are 200 million emails flying around, how likely is “digital” going to be to make a difference?

Telling stories, not giving presentations. Using memes, not charts. Speaking English, not finance. Game getting more fierce? Let me tell you about that, face-to-face … 

Get in touch:

LinkedIn: 7im
getintouch@7im.co.uk