A flippant, fearless, and fundamental countdown of big money investing.

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#2 Moonshots

Bitcoin, Blockchain, and CIOs of the Future

As one of the more ‘experienced’ participants in the investment arena, I remember trading in open-outcry pits in one-sixteenth increments—stinths or teenies to floor traders. We used hand signals and hand-tallied trades on cardboard tickets that, if lucky, were keypunched into a mainframe computer for permanent record on magnetic tapes. Portfolios were constructed with prices publishing in the Wall Street Journal, tracked by hand on 32-column ledger paper—and remember, two-martini lunches were common operating practice.

The last 30 years have witnessed technological, informational, academic/knowledge,­ and social change as radical and transformative as any period in human history. Today, an individual carries entire libraries of content on a device that fits in a pocket, and can immediately reach almost any person for additional information at an incredibly small cost. Two generations have grown up accepting this level of content and connection as common practice. I believe the innate ability of these generations to ‘think differently’ will lead the investment business to its own radical change in the next 10 years. The change is happening now in observable and hidden ways.

Security selection is already evolving. Big data access and analysis now allows savvy portfolio managers to buy slices of Google searches and accurately predict sales before the consumer has even made a purchase. Search information trends show the products being researched. Map information shows the retail sites highlighted. Portfolio managers know retail sales before the sale happens and four months before earnings come out. This type of analysis will only accelerate in coming years.

Transaction processing and management will be changing soon. Blockchain, the distributed electronic ledger system behind Bitcoin, will offer quick and easy settlement and tracking of both listed and unlisted transactions in securities, real estate, consumer durable purchases—almost everything. Custody banks and recordkeepers will be disintermediated by electronic databases offering full and immediate transparency at incredibly low cost. Within five years, your next custodian is as likely to be Amazon Financial as State Street Bank. Regulators already recognize this: Securities agencies are planning for a world in which each new security has its own blockchain ledger, and control agencies are developing mandates for investors to directly report all actions electronically in real time.

AI, the use of artificial intelligence, will transform portfolio construction and risk management. Real-time learning algorithms will run thousands of analyses per second to determine risks and recommend trades to mitigate undesired exposures. Consultants, plan sponsors, and risk managers as they currently stand will wholly change as a result.

Of course, what we invest in will change as well. Demographics, improved health care, robotics, 3D printing, new energy sources, and the changing nature of work will further transform the corporate environment from basic industry to data, technology, knowledge management, and education. Information does not drive a business cycle, so the nature of economic growth itself will change as well.

The utopia of doing more with less, with enhanced productivity leading to concentration on the world’s bigger social issues, is at hand. And perhaps with it—the return to the social grace of a two-martini lunch.

Greg Williamson is CIO of the American Red Cross.

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