12 Jun

EPIQ Blog: Different This Time, It Is...

The title of this blog does not mean we are channeling our inner Yoda. Rather, we are looking for a different way to say, "This time it is different."

Truth-be-told, the six-plus years of economic expansion since the Great Recession is longer than average and gives some, reason to take pause. Would this be a good time to recognize some gains and raise a little cash? Perhaps, but short term adjustments are usually counterproductive when compared to a thoughtful longer term strategy.

One theory for the longer (and slower than desired) recovery from the depths of 2008-2009, was the significant and painful malaise most experienced during the crisis. Investors would rather not live through that scenario again and this emotional response has put a cap on the risk many are willing to assume. So, today we see traditional valuations at reasonable levels based on historical measures. The market continues to slowly move higher because corporate earnings continue to grow slowly.

It is worth noting that those who fail to learn from history are doomed to repeat it and we are careful not to get ahead of ourselves. However, we observe that many of the influential metrics that are used to measure the past and to predict price movements are no longer relevant.

Why? Because this time it is different. The world has changed and it will likely continue to change at ever increasing speed.

 

In 2005, Tom Friedman published The World is Flat and spoke of the effect of globalization. While we feel Mr. Friedman was certainly accurate in his observations, our guess is that even he has been impressed by the flattening and shrinking of the world in the last decade. The main themes of the book focused on technology and mobility at a time when Facebook and LinkedIn were in their infancy and the iPhone was still two years away from launch.

A new National Geographic IMAX movie, Living in the Age of Airplanes, tells the amazing story on how far and how fast we have come. It is not just the movement of goods, capital and information, but of people in ever greater numbers who routinely travel the world in mere hours which used to take days, weeks, months or lifetimes. Our point is that in the last 10 years, the world has become flatter, smaller, more mobile, better informed and incredibly efficient at an ever-increasing rate.

As it relates to investment portfolios, the flatness of the world has led to landscape where technology, big data, ideas, talent, social media and capital move relatively freely across the globe. The theorems that were used a generation or two ago to explain how markets would/should behave may not necessarily hold true today. Economics is a social science and it measures the results of human behavior and although it is not likely to differ given a set of circumstances (think of the Middle East conflict now in its second millennium), when it comes to markets, the inputs and the speed at which these factors are incorporated make this a much different world.

We continue to blend the benefits of efficient market exposure along with owning individual securities. Our view is that companies with enduring characteristics in attractive industries have a greater likelihood to deliver desired returns. In an era when technology and data provide volumes of information, things like corporate culture, employee talent and customer engagement are critical to long-term success.
What is different this time is that continued slow-to-moderate growth should be tolerated and embraced. Further, businesses are smarter and have better information regardless of size. Worthy management will make major and minor adjustments in real time with greater levels of clarity. It will be the regions and cultures refusing to move forward that will be left behind.

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SAVE THE DATE: EPIQ Clambake - September 10th - Late afternoon – Contact us at This email address is being protected from spambots. You need JavaScript enabled to view it.  for details.

We are excited to announce that Mary Meehan, Founder and Chief Intelligence Officer at Panoramix Global, will be sharing her thoughts on consumer trends and possible pictures of the future. Mary is a frequent contributor to Forbes magazine. Click here to review her recent articles: Forbes.com/MaryMeehan.

 

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