Every once in a while, it’s good to take a step back, take a deep breath, and get some perspective on things. Or simply to ask, “What was the question again?”
For Areté the question has always been, “How can we best apply our expertise to help investors get ahead? This perspective is grounded in the classic marketing insight by Harvard’s Theodore Levitt that “people don’t want to buy a quarter-inch drill. They want a quarter-inch hole.” In other words, people hire a product or a service to do a certain “job”.
My contention has been, and continues to be, that people don’t want to buy a massive array of investment products and services. Rather, the “job” they want done is to be reasonably secure that they will be able to look forward to a decent retirement after many years of work.
Unfortunately that “job” has gotten a lot harder. A number of challenges were addressed in a recent piece in the Financial Times by Lisa Pollack [here]. She noted, “There is, however, a growing group of people like me [i.e., younger] … for whom retirement is a vague ambition likely to be further undermined by future deficits, changes to the retirement age, additional unfavourable alterations to the state pension and low interest rates. We are in a different emotional and mental situation from fiftysomethings on DB schemes. And we need more information that’s relevant to us.”
These comments are telling in many ways, and not just for younger investors. For one, they reveal with unusual honesty the severity of today’s investment challenges. Multiple forces are “undermining” retirement plans, each of which is powerful in its own right.
Secondly, the fact that the concept of retirement has evolved from a near certain goal to a “vague ambition” highlights the degree to which the future is less bright for younger investors than older ones (i.e., declining intergenerational equity). When one group of people is treated unfairly relative to another group of people, the cohesiveness of society erodes and political (and therefore, economic) uncertainty increases. We don’t need to look past this year’s election to see this phenomenon.
Finally, the comment that, “we need more information that’s relevant to us” sounds a lot like unmet demand - and therefore an interesting business opportunity for Areté. I actually think that a lot of investors have been underserved for quite a while, but the immediate pain has been forestalled by the anesthetic of easy monetary policy. By incorporating a different trajectory for their futures, younger investors see something many others don’t: There is a need for a fundamentally different approach to investment services.
This is good news for Areté because it plays right into our strengths – staying focused on the “job” that investors want done.
This was exactly the reason for starting up the personal Chief Investment Officer service. The service is designed to provide “more information that’s relevant” to investors whether they be individuals or organizations. It is also designed to do so in a way that is very modular and accessible in order to make it as easy as possible for investors to get that relevant information.
In addition, during this period in which opportunities for stocks have been meager (see “Transaction Reivew”), I have been allocating more of my time to building up the set of analytical tools from which to draw upon when market opportunities do emerge again.
Most specifically, I have been building a proprietary valuation model to replace the one I used to license from a vendor. New technology and better access to data play right into Areté’s strengths and are facilitating not just much greater control over the valuation exercise, but also the potential for some pretty exciting future development and at a lower operating cost.
While I believe that Areté’s technology and research roadmaps are fairly unique, they are also emblematic of the ongoing effort to gather, manage, and communicate “relevant information” for investors.
Finally, there is a wave of change coming. I thought it would come sooner, but make no mistake, it is coming. As investors demand better ways to get “more information that’s relevant” to them, and in an easy and cost-effective way, there will be serious challenges for many providers. But there will also be terrific opportunities for some new ones.
Thanks for your interest and take care!
David Robertson, CFA
CEO, Portfolio Manager