The inspiration for this article came from two blockbuster investment pieces published in the early 1980’s. The first was titled “The Greatest Financial Story ever told”, written by Greg Smith, the lead investment strategist for Prudential Securities. The second was titled “Revenge of the Nerds”, written by Stan Salvigson, a strategist at Merrill Lynch. Both titles were clever and a clear signal that these pieces were going to be different. And they were. Both correctly laid out the investment framework for the foreseeable future, a future in which financial instruments (primarily bonds, derivatives and stocks in financial service companies) would be the winning investments. Remarkably this strategy lasted until 2008, a span of over 25 years.
We hope to convince you that the U.S. financial markets are entering a new era, in which the key to investment success will be to invest in the stocks of winning companies at fair prices or less and hold them for long periods of time.
Innovative enterprises will be the champions of the new era. Their springboard for success will be their successful exploitation of the massive technological innovations which have been brewing for over thirty years. Enterprises must learn to think and behave differently in order to prosper in the new paradigm. There will be at least three major variables which will need to be addressed:
- People – The winning enterprises of the future understand that their most important assets are their people. Long-term success will be contingent upon an enterprise’s ability to attract and retain the right knowledge workers. At a minimum, this means establishing a culture defined by a high level of trust and transparency.
- Tools – Once the enterprise has the right people on board, they will need to provide the tools that help maximize individual potential. We define tools broadly to include both the devices and domain knowledge that will spur productivity gains. This means each enterprise must have a proactive stance toward new technology and the ongoing education of its personnel.
- Systems – Finally, the winning enterprises of the future will understand that maximizing individual potential is not the same as maximizing the potential of the enterprise. To be successful, the organization must design and implement systems that act as a multiplier to individual contributions. The most obvious of which is developing an innovation engine that leverages the collective insights of the organization