We all have our own tales about ‘work,’ don’t we? For most of us, that word might conjure images of ticker tapes and ticking clocks, endless spreadsheets, or maybe a boss with an uncanny ability to appear just when we’re sneaking in a social media break. But today, let’s toss aside those run-of-the-mill ideas and delve into a different kind of work – the kind that deals with energy and motion, as defined by physics.
Now, don’t let your eyes glaze over. We’ll make it as plain as pie. Think about something as simple as moving from your desk to fetch another much-needed cup of coffee, or making the trek from your comfy couch to your office. By just walking, you and I burn about 100 calories for every mile covered. But here’s a funny twist – we’d burn more if we decided to run that same distance, despite doing the exact same amount of ‘work.’ Doesn’t quite add up, does it? Blame it on our bodies being a little less efficient when we’re huffing and puffing.
Now, what if we brought a bicycle into the mix? Our calorie burn plummets to roughly 20 per mile. That’s five times more efficient! And if we chose to ride downhill, we’d be cruising along almost for free. Hop into a car, and things get even more interesting, though we’d start burning more than just our breakfast.
So, this gets us thinking: Could we apply this kind of efficiency leap to something like investing? And, more importantly, should we? Well, folks, the answer to both those questions is a hearty ‘Yes!’
Moreover, the industry must do so or perish!
The world of fundamental investing has been, at an increasing rate, a bit like trying to drink from the proverbial firehose. There’s a growing mountain of information to take in, digest, and then create forecasts from, all while we’re juggling a number of concurrent announcements at the same time (just look at a reporting calendar during earnings season). Fundamental investing is a prime candidate for automation, and quite frankly, it’s sink or swim for the industry.
Traditional asset management is in a tough spot, losing ground because of two big trends: index funds and quantitative investing. Thanks to computing power, these two have been stealing the show, leaving the traditional fundamental managers struggling to keep up.
Index investing is like the comfort food of the financial world. Investors can just ride along with market performance without the hassle of trying to outdo it. And the best part? It comes cheap. This, of course, means that everyone else has had to tighten their belts and cut their fees. Then there’s quantitative investing, which has systematically axed those reliable sources of alpha. What used to be a golden goose for performance is now just another beta, available for less from quantitative asset managers.
So, what does this mean for the old guard? Well, they’re seeing smaller scales, lower fees, and less impressive performance. But here’s the silver lining – the same computers that started this whole mess might will be their salvation.
Take Quantworth, for example. We are embracing the future, harnessing the power of artificial intelligence to overhaul the way we do fundamental investing. Not only does this approach ramp up efficiency, but it also keeps the process transparent, scalable, and repeatable, all while keeping those pesky behavioural biases at bay.
When you get down to it, the idea of work in physics isn’t so different from investing. Just as we can make our bodies more efficient by hopping on a bike or in a car, we can revolutionize investing by embracing technology. The future of the industry might just depend on it!
