Going to Space to See the Big Picture
An article that was recently published in the Wall Street Journal exposes a very unique technology tool that hedge funds use to determine future prices. A company called Planet Labs, Inc. has launched tiny, shoe-box sized satellites into orbit around earth with the mission of gathering data on “economically sensitive” spots like retailers’ parking lots, oil storage tanks and farmland. By analyzing the images they get back from these pint sized space machines data hungry hedge funds can offer clients “signals”—predictions on how prices will move for certain stocks. This analysis includes revenue predictions for big box stores based on changes in the number of cars in their lots and forecasts for oil inventories based on the height of floating lids in oil tanks.
In a world where we can literally make educated guesses about price futures by looking at the world from space it is important to remember just how big our world has become.
When it comes to investing, a bird’s eye view (or satellite’s eye view) approach can come in handy if your intention is to be successful for the long term. For many investors it is difficult to get away from the daily barrage of financial news that is deadest on convincing us that the markets are about to take a nose dive or that one stock is going to make everyone millions. Planet Lab’s tiny satellites don’t just offer real time imagery of targeted locations, they offer the opportunity for that imagery to be gathered quickly and analyzed in the aggregate to offer insight into a much larger picture than any one image would be able to convey. When we take a step back and look at the financial markets over the course of five or ten years, last week’s news story is a speck in time.
Strength in Numbers
If the satellites only gathered data from one big box store’s parking lot and they were used that to determine price futures for that store’s entire US market, they would not likely have accurate data. The same theory can be used to look at investing. One cannot take one piece of current news, focus on one election cycle or one poorly performing stock and throw the baby out with the bathwater. Nor can we take one piece of stock advice or follow one manager who claims to have the secret to success and expect to maintain compound growth over the long term ebbs and flows of the market.
All too often, investors get spooked by a series of losses in a particular asset class and sell out of their investments. Perhaps only a year or two later they see that those investments are back up on top and they feel guilt and frustration for not having stuck with it.
Faith in Markets
Just like the satellites take millions of pictures which need to be aggregated to produce macro level data, markets reflect a vast, complex network of information, expectations and human behavior. Just as the satellites work together to collect this information and make all of the pieces create a whole picture, the forces of the market drive prices to fair value.
Many traditional managers try to beat the market by sifting through the minutiae to find pricing “mistakes” and they attempt to capitalize on these speculative discoveries. Predictions often prove costly and the managers end up missing opportunities they did not see with their heads in the sand.
The futility of speculation for a responsible investor is good news. It fosters the environment for public securities prices to remain fair and proves the fact that differences in portfolio returns are better explained by differences in risk rather than who picked the best stock last year.
A view from the top
Utilizing a globally diversified portfolio strategy with exposure to domestic, foreign and emerging markets with asset allocation based on comprehensive risk tolerance analysis allows us to help our clients invest for the long term with the peace of mind in knowing that their portfolio has been built to last and grow over time.