- 2016 Greatest Hits: Presenting The Most Popular Articles Of The Past Year
- 2016 Hedge Fund Letters
- Key Digital Trends for 2017
Trend 1: The Chatbot Gold Rush (Facebook Messenger is at least three years behind message platforms in the East)
Trend 2: The Abdication Of Ethical Decision Making (Definition of ethics changes as technology progresses, so as how brands have to adapt)
Trend 3: A Video First World
Video is now at the forefront of content marketing. Facebook LIVE is killing Twitter which no one apparently wants to buy, be it Facebook, Google, Apple or Salesforce.
Trend 4: Twitter Retrench
“Twitter continues to struggle to find articulate its place in the world now and in the future.” With its huge user base, Twitter now is likely to focus on data and influence where it has demonstrated that the platform can have a big impact on politics, brands, technology, celeb culture, movies, media, and publishing
Trend 5: Facebook’s Proprietary Metric Problem (Basically don’t believe whatever Facebook tells you about how great it is)
“While active investing has contributed to its own downfall, there is a dark side to the growth of passive investing and many in the active money management community have been quick to point to some of these.
Corporate Governance: As ETFs and index funds increasing dominate the investment landscape, the question of who will bear the burden of corporate governance at companies has risen to the surface. After all, passive investors have no incentive to challenge incumbent management at individual companies nor the capacity to do so, given their vast number of holdings. As evidence, the critics of passive investors point to the fact that Vanguard and Blackrock vote with management more than 90% of the time. I would be more sympathetic to this argument if the big active mutual fund families had been shareholder advocates in the first place, but their track record of voting with management has historically been just as bad as that of the passive investors.
Information Efficiency: To the extent that active investors collect and process information, trying to find market mistakes, they play a role in keeping prices informative. This is the point that was being made, perhaps not artfully, by the Bernstein piece on how passive investing is worse than Marxism and will lead us to serfdom. I wish that they had fully digested the Grossman and Stiglitz paper that they quote, because the paper plays out this process to its logical limit. In summary, it concludes that if everyone believes that markets are efficient and invests accordingly (in index funds), markets would cease to be efficient because no one would be collecting information. Depressing, right? But Grossman and Stiglitz also used the key word (Impossibility) in the title, since as they noted, the process is self-correcting. If passive investing does grow to the point where prices are not informationally efficient, the payoff to active investing will rise to attract more of it. Rather than the Bataan death march to an arid information-free market monopolized by passive investing, what I see is a market where active investing will ebb and flow over time.
Product Markets: There are some who argue that the growth of passive investing is reducing product market competition, increasing prices for customers, and they give two reasons. The first is that passive investors steer their money to the largest market cap companies and as a consequence, these companies can only get bigger. The second is that when two or more large companies in a sector are owned mostly by the same passive investors (say Blackrock and Vanguard), it is suggested that they are more likely to collude to maximize the collective profits to the owners. As evidence, they point to studies of the banking and airline businesses, which seem to find a correlation between passive investing and higher prices for consumers. I am not persuaded or even convinced about either of these effects, since having a lot of passive investors does not seem to provide protection against the rapid meltdown of value that you still sometimes observe at large market cap companies and most management teams that I interact with are blissfully unaware of which institutional investors hold their shares.”