Yesterday I promised to produce the most optimistic 500 or so words on the UK economy that you have read. Well, this is it, my attempt to be more bullish than a large cow shaped thing, with horns and a ring through its nose.
And before I get started on my bullishness, let me have a moan about bearishness. There is one well known magazine aimed at investors that delights in telling us in the UK that we are all going down the pan, and that the only thing investors can do is buy gold. Don’t get me wrong; there have been occasions when it is right to be pessimistic about the economy. You may not believe me, but I was such a pessimistic in 2007, and once got an email from a reader moaning that I always seemed to see the world through very dark glasses. But that was then. I don’t hold these views now, and actually get frustrated when I keep reading them elsewhere. There are some bears that can’t help themselves. Their predictions of doom will be proven right from time to time, in much the same way that a broken watch is right twice a day – or a broken watch that tells the date, month and day of the week might be right for two seconds once every seven years. There are some tipsters out there who are so bearish that I am grateful they weren’t around when we lived in the trees. They would have warned of catastrophe if we moved down onto the savannah below, and no doubt tipped tree house construction, or buying bark, or something.
This is why I do believe in the UK: it can be summed up by one word: technology.
I have been to a few networking events of late, and I am pleased to tell you that there is a small sector operating in the UK that is very, very dynamic. Let’s call this sub-sector digital entrepreneurism. And in much the same way that Apple went from nearly bust to the world’s biggest company; that Google went from start-up to one of the world’s largest companies, and Facebook from literally nothing to gigantic in just a few years, this sector has the potential to explode; to become the biggest single sector in the UK economy.
Critics of the UK economy say banks are holding back recovery, but let me tell you that as far as the sector I refer to is concerned, banks don’t matter. The entrepreneurs raise money from peers, from crowd sourced funding. Many of these digital entrepreneurs have it both ways; they invest in companies using crowd sourced funding, and they get investment in their own companies from crowd sourced funding.
I am not sure that traditional banks – unless they change – will remain relevant in ten years’ time, or if they do, it will be in a very watered down way.
And there is another development that is occurring – we are seeing the emergence of funny kind of capitalism; you might even call it socialist capitalism. Many of the large accountancy firms, lawyers, management consultancies and even some banks – the ones that may survive that is – have spotted what is going on. As one senior employee at a large firm of accountants told me, “It is as if we have to become socialist.” These professional firms are scared of what is going on, and they understand that they need to understand it. So they are getting behind the revolution, promoting a more sharing kind of economy, and offering their services to firms so small that they wouldn’t have considered working with them in a different era. They are not doing this because they are nice and caring and don’t worry about profits. Sure, they have an ulterior motive – but then don’t we all – even a great philanthropist has an ulterior motive, even if that motive is that giving money away makes him/her feel good. The motivation of these large firms is trying to safeguard their future; to build-up expertise and a reputation in digital entrepreneurism.
So what can investors do? Well I can tell you what you must not do, and that is to invest in companies whose business model may be destroyed by this new way. Remember Eastman Kodak? It was one of the biggest companies in the world throughout the entire course of the 20th century, but within a few years of this century they were bust.
I am now going to say something very controversial. I am not sure the Warren Buffet approach to investing will work over the next two decades. Investors who largely ignore high growth technology companies with large pe ratios may well find they are left backing businesses that go from world beaters to bust in hardly any time at all.
I have used this column many times to focus on the kind of companies that will benefit from changes afoot.
As for the UK economy – this country has never lacked talent. However, it has often gone overseas in the past . It is not like that now. Talent is coming here (take a look at the winners of the recent Nobel Prize – the scientists who discovered graphene, to get my point).
And the focus for all this is the UK’s major cities, such as London, and the key is multiculturalism. And that is why I am optimistic about the UK in long run, although I do fear that technology may have undesirable, as well as desirable consequences.
These views and comments are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees