Editor's letter

The Information Age is about to get interesting

The IT revolution has been around for a while now, says Merryn Somerset Webb. But we're just getting to the good bit.

In this week’s podcast (moneyweek.com/podcasts) I talk to Rob Arnott, the chair of Research Affiliates. We talked a good bit about the UK market: he is as convinced as we are that now with Brexit off the front pages (the gas shortage has nothing to do with Brexit) and the UK’s Covid-19 strategy proving to have been more successful than one might have suspected last year, there is no good reason for our market to be trading at a 60% discount to the US market. We talked about the US market too – I wondered if it is possible that the valuation differential between the US and the UK might be closed not by the UK rising, but by the US falling. 

In part, yes, says Arnott – there are parts of the US market that are definitely not in a bubble of any description (think energy) but there are other parts that are (technology). It makes sense for investors to steer away from the super expensive to the reasonably valued. 

The case for optimism

I’m minded to agree with him, of course (MoneyWeek tends to be biased towards value investing). But there is also a very compelling alternative view. Kirsty Gibson, co-manager of the Baillie Gifford US Growth Trust, suggests looking at some of the more “optically expensive” US companies – not with an eye to short term price/earnings ratios, but with one to the idea of the stage we are at in our current technological growth cycle (see carlotaperez.org for more on the theory regarding this). Much of the time nothing much happens; but every now and then (five times in the last 550 years) we get a sudden speeding up in innovation – a technological revolution. Think the Industrial Revolution, the age of steam, the widespread adoption of electricity, and the age of oil and mass manufacturing. 

In all cases there are two stages. First, the “installation” stage, in which the new technology enhances a few sectors and makes a few great fortunes. These stages – which typically last 20 years – tend to be characterised by rises in inequality and social unrest. Next comes the good bit – the “deployment phase” – the bit when the new technology enters all parts of the economy and benefits everyone. We are, reckons Gibson, around the beginning of this bit of our stunning information technology revolution right now (a little earlier than we might have been without Covid-19). 

One example? Education. She points to the rise of Coursera, one of the originators of massive open online courses (MOOCs) and a company now using the internet to open access to high-status education to anyone with the ability to take it on. Health is another example: diagnosis is well on its way – via artificial intelligence (AI) and genomics – to being less educated guesswork, and more accurate, personalised and efficient. Think about the change underway, the change to come and the almost limitless opportunities there are for companies set up to grasp them; and, while one-year valuations are not meaningless, they can’t offer the information that is really important – about the potential tied up in revolutionary companies. 

I love this gloriously optimistic way of looking at it – there’s a reason I have and will keep holdings in a variety of Baillie Gifford funds. But there’s room for both views in a portfolio – and sometimes price really does matter. I am topping up my conventional energy holdings too. 

Recommended

Sterling crashes to its lowest since 1985 after mini-Budget
Currencies

Sterling crashes to its lowest since 1985 after mini-Budget

The pound has fallen hard and is heading towards parity with the US dollar. Saloni Sardana explains why, and what it means for the UK, for markets and…
23 Sep 2022
Earn 3.7% from the best savings accounts
Savings

Earn 3.7% from the best savings accounts

With inflation topping 10%, your savings won't keep pace with the rising cost of living. But you can at least slow the rate at which your money is los…
23 Sep 2022
Three top-notch Asian stocks to buy
Share tips

Three top-notch Asian stocks to buy

Professional investors Adrian Lim and Pruksa Iamthongthong, managers of the Asia Dragon Trust, pick three of their favourite Asian stocks to buy now.
23 Sep 2022
How to use Section 75 credit card protection for your purchases
Credit cards

How to use Section 75 credit card protection for your purchases

Your credit card can give you extra protection when the goods or services you purchase fall short of your expectations. Ruth Jackson-Kirby explains ho…
23 Sep 2022

Most Popular

Could gold be the basis for a new global currency?
Gold

Could gold be the basis for a new global currency?

Gold has always been the most reliable form of money. Now collaboration between China and Russia could lead to a new gold-backed means of exchange – g…
22 Sep 2022
Paypal, bitcoin, and the weaponisation of money
Bitcoin & crypto

Paypal, bitcoin, and the weaponisation of money

Recent events have shown how both business and governments can “weaponise” money and shut down dissent. What to do? Buy bitcoin, says Dominic Frisby.
22 Sep 2022
Why you should short this broadband satellite company
Trading

Why you should short this broadband satellite company

With an ill-considered business plan, broadband satellite company AST SpaceMobile is doomed to failure, says Matthew Partridge. Here's how to short th…
23 Sep 2022