Nathan Nicholson, investment analyst at Vertem, explores the relationship between technology and investment
Technology is home to some of the most disruptive, exciting and highly coveted companies in the world, and as a result plays a huge role in the investment industry.
Technological change, disruption and development is either affecting the companies we invest in or how we invest. There is no doubt that technology has brought our industry and others on leaps and bounds, however, at times, it has been a case of two steps forward, one step back.
Black Monday was one of the first afflictions with technology. October 19, 1987 saw global markets crash, the FTSE recorded its largest one day fall in history. It was a perfect storm but what made the sell-off so severe was computer programmed trades. The sell orders executed by computers, ironically that were meant to cut losses, sold everything they could. These capabilities were so new, traders were oblivious to the potential damage they could cause in such extreme events. A harsh lesson was learned.
Technology was the prime suspect in the dot-com crash, unsurprisingly. The bubble that was built on speculation and delirium that the internet could do no wrong burst in the early noughties.
The mere mention of a ‘www.’ turned investor eyes green with rolling dollar signs. The frenzy sent basic investment principles out the window and investors served a costly punishment, as our honeymoon period with the internet ended.
Technology unfortunately wasn’t innocent during the most devastating financial crisis since the great depression and technological globalisation was one of the main reasons it was, truly global, with the butterfly effect more profound than ever before. It’s quite clear technology is a double-edged sword to not just those directly involved in investments. Many jobs have been replaced by new roles or completely lost to outdated industry. As new technology comes to the table it often means something has to give, look at the high street currently locked in a civil war with their online counterparts.
Innovation takes no prisoners, and the pace of innovation continues to quicken. A small window of complacency can be fatal for firms, look at Nokia and Blackberry for example, the endless list of high-street names and more recently Thomas Cook. But at times innovation is almost impossible to counter, firms like Uber and Netflix despite much industry opposition were simply game-changing.
So where are we today?
Well, the tech-heavy Nasdaq sits near all-time highs despite almost dropping 25% at Christmas last year.
We’ve seen the first trillion-dollar companies in Apple and Amazon and Mark Zuckerberg is still visiting court.
We are constantly reminded of the relationship between tech and risk. Bitcoin being a prime example, although back at the $10,000 mark following a recent rally, bitcoin and cryptocurrencies’ future remains uncertain.
To conclude, criticism can be thrown at technologies, but it is humans that are the ultimate pilots of such.
Technology exposes our biggest behavioural flaws in the investment world, as highlighted by the allure in the dot-com era and global financial crisis in 2008. Principles can’t be overlooked in any trade; technologies here today can be gone tomorrow.
Amazon started as a bookstore but again, don’t think every firm is the next Amazon. If ever there’s a reason to be disciplined with investing fundamentals it would be to remember Kylie Jenner once wiped over $1bn dollars from Snapchat’s market value in a day after tweeting she doesn’t use the app anymore (the most millennial attack of all time).