Is Software Eating Value Investing?
A cura di Ben Carlson, A Wealth of Common Sense
Marc Andreessen wrote one of the more prescient pieces of this century in the Summer of 2011 called Why Software is Eating the World. He laid out his reasoning behind the idea that technology is fundamentally changing the way we do business, likely for good:
My own theory is that we are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy.
More and more major businesses and industries are being run on software and delivered as online services—from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures. Over the next 10 years, I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.
He listed a number of reasons for his theory:
- Technology can be delivered around the globe at scale.
- Billions of people use the Internet and own smartphones.
- These tools make it easier than ever to launch new businesses without huge upfront costs.
This new business climate has caused many in the investment management world to call into question their strongly held beliefs about the efficacy of fundamental analysis when valuing businesses. I’m not sure what probability I would place on this being true but it’s quite possible this new world could completely change the way investors are forced to evaluate corporations and their financial statements.
This puts traditional value investing squarely in the crosshairs of the technological revolution, which has caused many within the asset management industry to rethink how they go about building portfolios.
Its possible people are calling value investing into question simply because it’s underperformed growth investing by a wide margin for quite some time. This is the scorecard from March of 2009 using simple measures of value and growth:
It’s much easier to call for a paradigm shift when things are going poorly than when they’re going swimmingly. But it’s hard to argue things haven’t fundamentally changed in the make-up of corporations because of technological innovation. This is not your grandfather’s stock market.
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