Monday, September 10, 2012

Waves, Tides, and Currents

Thanks to producer Paul Brennan and host Pimm Fox, today’s guest co-hosting hour (3 to 4 PM eastern) on Bloomberg radio’s Taking Stock with Pimm Fox and Courtney Donohoe affords me the opportunity to explore the major thrust of the research work of Blue Marble Research as well as the newly formed New York Society of Security Analysts’ “Global Thematic Committee”: global thematic issues.

Big picture issues, specifically the ones that wash over business cycles and across economic sectors and industries, are an under developed area of research. This is especially true when you attempt to take it down to the specific investment actionable area. Yet, as the oceanographic analogy below illustrates, global thematic issues are the major force impacting economies, economic sectors, industries, and companies. Three of these global thematic issues will be explored today – politics, innovation, and economy: PIE.

To understand PIE and how the individual global thematic threads are connected one to the other (into what becomes a global thematic picture) is not as easy as pie. It is complicated. Moreover, there is a great deal of dynamism within the global thematic space, where the one constant – change – is ignored at one’s own financial and business peril. Lastly, much of what occurs at the global thematic level is not easily quantifiable.

Now, in the world of traditional economic and financial analysis, when something is complicated, dynamic, and, crucially, hard to quantify it becomes something that investors and analysts acknowledge but have little means to incorporate into their economic, financial and valuation models. This is where most of the Blue Marble Research value proposition lies. A work in progress, for sure, but a goal worthy of the effort, provided the basics of investing (and tools used) are not disregarded.

To be clear, global thematic is not only about top down, secular forces that impact all that lies below. For, what happens at the grassroots company level can often impact the overall environment. (And this is an area of research that can be developed further and incorporated into the global thematic analysis framework.)

So, when you read Wall Street Journal commentary by Charles Koch and listen to today’s Bloomberg radio segment (which can be heard live via and later via iTunes) along with the research, analysis, and commentary produced in Blue Marble Research reports (as well as blog postings and media and live event appearances) you will hopefully gain what it being attempted: To help subscribers and investors gain an investment competitive advantage and produce alpha (on an absolute and risk adjusted basis).

Now, the metaphor.

Investment Strategy Implications

When you stand on the seashore, you can easily see the waves breaking. If you stand long enough, you will see the tide rolling in and out. But you can stand on the seashore forever and you will never see the most powerful force in the ocean – the current.

To “see” that force requires the right kind of instrumentation and an understanding of how that force impacts the visible parts of the whole. So, perhaps with some hard work and a little luck we can get our investment feet and heads out of the bottom up/traditionally oriented analytical sand and discover the mega forces at work in today's changed global economic and market structures.

Interconnected, dynamic, and complex. That is the real world of the oceans. That is the real world of investing.