Monday, March 26, 2007

The Times They Have a-Changed

Change, the one constant in life, has impacted the investing world in ways that many may not fully appreciate.

The primary source of change today is Globalization.

Globalization, in its full manifestation, reflects the free flow of goods, services, and capital. When coupled with the emerging dominant economic ideology - market fundamentalism - a world of change is the dynamic, the effects of which are yet to be truly understood.

Innovation, technological and financial, is the other element in the change equation. Technological innovation is the great enabler of Globalization. And financial innovation plays a vital role in capital – sources and flows.

An expression of change that should be of great interest to investors is the players now inhabiting the markets.

Hedge funds, private equity, and millisecond traders have moved in alongside the more traditionally oriented investors. Yet, the goals and interests of the relatively new kids on the block, not to mention their diverse valuation methodologies, must be a part of the investment decision-making equation for the larger, more traditional investor types. If not, for anything else than to exploit opportunities as they are presented.

When markets are moved by such players, relying on traditional analytical approaches is insufficient for today’s dynamic global markets. This is not to say that traditional valuation approaches do not play an important role. They do. But to ignore the new players, with their trillions of dollars at work, is to deny the change and its impact on markets.

Investment Strategy Implications

The danger for investors is in not appreciating that we are living in changed times. And not just from a geo political perspective. Market participants with trillions of very active dollars cannot help but alter the investment landscape. Investors who fail to add this to their valuation tools do so at their own investment peril. Conversely, those that do appreciate the change that has taken place will find themselves in an enhanced competitive advantage.

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