The view from the bleachers can be a profitable one

There is a theory that some people have a talent for making decisions, while other people are best at carrying out decisions.

The difference between decisionmakers and action-takers has been analyzed by age, education, experience, sex and ethnic background.

Richard Sneller, head of emerging markets for the Scottish investment firm Baillie Gifford, believes that recent decades of globalization have made it possible for many ideas hatched in industrial countries to be converted into goods and products by emerging markets elsewhere. He explained the phenomenon to members of the Edmonton CFA Society — a chartered financial analysts group — by quoting a Swedish friend.

“If you sit high up in the bleachers of a soccer game, you have a good view,” wrote his friend. “You have a perfect view of the playing field and the players and can therefore see things the players themselves cannot see. You can see how the game actually ought to be played. Because Sweden is positioned high up in the bleachers, far from the centre of events, we in Sweden have the perfect view of the world.”

It’s the same reason famed investor Warren Buffett lives in Omaha, Neb., far removed from Wall Street.

“The investor looking at the options available to him 25 years ago would probably be compelled by the marketing ‘spiel’ surrounding the attractions of the Japanese equity markets,” Sneller said. “Sadly, over the 25 subsequent years he would have lost half his money. On the other hand, if he’d gone for the unattractive emerging markets, he would have made 10 times his money.”

Sneller traced how the top emerging markets were Malaysia in 1987, Mexico in 1992 and Taiwan in 1997.

“It was all about trade and these poor people being able to make things cheaper.”

China started to revolutionize in 1992 and carried forward with mass privatizations in 1998.

“For once the Chinese consumer could start to dream about the house, the car, the wife, et cetera. And that brought about what many of us have come to know as the great commodity boom we’ve seen in the past decade or so.”

But the end of the commodity “supercycle” in things like oil and copper, which China devoured during its building phase, is giving way to new opportunities in areas like e-commerce, virtual reality and nanotechnology.

Sneller said that Alberta, with the National Institute for Nanotechnology at the University of Alberta, has a great spot in the bleachers from which to watch a new world economy unfold. “Is the advent of the Internet and nanotechnology going to be the most significant social and technological change any of us, or any generation before us, has ever seen?”

He said university students were confounded by something called an email address as early as 1990, but only now, 22 years later, are we starting to embrace e-commerce.

“The Internet generation has grown up in an environment of tremendous change, and I would suggest it will demand more and more. In our lifetimes, we are going to see technological innovation deliver solar power in a way that is going to confound just about all of us. There’s a lot of the wrong type of housing being built in China. And when it comes to food, 50 per cent of all food produced in India is wasted before it gets to the consumer, so the problem is to improve the logistics.”

But there will be some downside to progress, namely “creative destruction,” where new businesses destroy old ones.

“I think it is going to be the ability of companies to bring together people with different disciplines that is going to help people manage the potential threat of destructive technology. It is people with a broader education who will be best able to understand that. And where many of these companies are located is Asia. Adaptability is going to be the key.”

He feels many existing business models are under threat.

“From where I sit in the bleachers, equity markets seem to be placing this massive valuation premium on the apparently stable businesses of the past,” Sneller said. “But the discount that is applied to any business with a significant degree of uncertainty in terms of the range of growth potential is the biggest I’ve seen.”