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Digital Revolution & High Equity Prices, And Why High Allocation To Conviction Equities And Non-listed Assets Make Sense

The first two industrial revolutions inflicted considerable pain and destabilisation erasing whole industries. The power boom in the late 18th century and then Edison’s electric light and Benz’s horseless vehicles in the 1800s, led to significant job losses. These though ultimately benefited everyone.

The current revolution, the digital revolution, however could be far more divisive due to the “unpresidented” (author’s note: could not help myself) pace at which the change is evolving.

This is, and will, create significant risks not only for investors but many livelihoods.

This is, and will, create many livelihoods as well as provide opportunities for many astute investors.

The digital revolution is likely to create more economic change than ever before as its impact on every aspect of society, not just the working economy, is far more omnipresent. Between 1988 and 2003, computers became 43,000,000 times more effective through smaller processors and algorithms.

Problems once deemed impossible, are now held in the palm of our hands. Recently, one of Google’s AI innovations, AlphaGo, beat South Korea’s Lee Se-dol, in a complex Chinese game called Go – a feat that had not been expected to be achieved for a very long time.

The pace of change is undeniable – but the key is to understand the remarkable pace of change, and more importantly understanding the likely impacts of this accelerated change, and then having a strategic plan of action. For the investment world for example, it is important to understand how companies can be very quickly disrupted, their share prices decimated and shareholder value eroded – this is already too fast for many investors to have time to react. The figure below shows the companies that have over the recent years joined the S&P500 index and the ones that have exited.

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