Today is a tremendously exciting time to be involved in investment management. New
developments are occurring all the time at an ever-quickening pace. It is a wonderful time
to be a heretic. It is an excellent time to be agnostic. Some heretics and agnostics get
burned at the stake, but others go on to found new religions. For our field, heresy and
agnosticism lead us to new ways of doing things better. The investment management
industry must overcome its tradition of dedication to the way research used to be done.
Thirty years ago, Bill Sharpe and others established a quantitative research framework for
the industry. Since then, many people have offered refinements to that basic theory. For
years, Batterymarch has contributed to the research effort by funding research
fellowships. All these efforts were engaged in moving research and top-notch people along
to greater skills based upon fundamental theories that are now 30 years old. Now is the
time to reexamine those theories. In this presentation, I want to challenge the notion
that you have to be there to do meaningful qualitative research.
The Internet
Almost every newspaper I pick up contains an article on the Internet or an Internet
conference. In almost every field—except investment management—the exploitation
of the World Wide Web is rapidly underway. Web use—that is, the number of users times
hours of use—doubles every 50 days. New home pages are being created on the Web every
five seconds. Those related to marketing investment management and financial services are
increasing at a faster rate than average.
The Web is an enormous resource that can improve upon traditional research. I spend 15
to 20 hours a week using the Web for resource material. For me, the Web is like walking
into the library at Harvard, the library at The British Museum, and the Vatican library,
all at the same time. The Web is similar in content.
The Web Has Extraordinary Characteristics
The Web is open. It gives anyone in the world absolutely equal access for a relatively
modest investment. For about $700, you can get a computer that will give you access to the
Web in color, and that price will go down.
The Web is virtually free. For about $10 a month, most people can have unlimited access
now, and soon the price will go to zero. Users will be subjected to more advertising,
however.
The Web is instantaneous. It may not seem to be when you are sitting there waiting
those 15 agonizing seconds to get through to South Africa, but it is instantaneous
compared with all other alternatives.
The Web is global. Recently, I watched a 14-year-old boy use the Web to keep in contact
with his pen pals. They are from all over the world, but he was not aware they are from a
different country. They are his friends. Most he has not seen, but, in effect, he is in
continuous communication with them. That fellow is going to have a different view of the
world than most of us here do.
The Web is user-controlled in terms of time. You turn it on when you want.
The Web is user-controlled in terms of depth. If you want to learn more, you can; if
you want to skim the surface, you can. That changes the nature of the way information is
received, because no longer does the author of information control the information. It is
now the reader who controls the information.
The Web is getting more flip, getting hip. Capital letters are going out. In the United
States, look at the new CNN financial network, CNNfn—CNN is in caps, fn is in lower
case. And all the titles are in lower case because the computer, typically, is case
insensitive. Capital letters, for those of you who are in the capital letter business, are
going out of style.
The Web is fun. If Web sites are not entertaining and educational at the same time,
they do not hold you . . . so Web sites are designed to be educational and fun. Look at
the difference between an encyclopedia on the Web and the same thing in book form. The
Encyclopedia Britannica has always had a bibliography at the end of each entry that allows
users to find related material; now, with its Web version, users can link immediately to
related areas of interest.
Strangely enough, Internet development has had little commercial motivation. Most of
the innovations have come from the academic community—students, quite often. Crayon,
for example, which is a way of customizing a newspaper for yourself, was developed by two
sophomores at Bucknell. Netscape was developed by a graduate student at Stanford. Yahoo
came from two graduate students at Stanford. In most cases, these projects were undertaken
for a sense of achievement or to solve a problem. The developers would like to have made
money, but money does not appear to have been the motivation. I do not quite know what to
make of that, but I think it is significant.
Harvard Business School is going to use, or is now using, the Internet to teach a case
study for students on the Net. For the first time, the students will not be sitting in the
amphitheater talking to one another. Next year, those students may be located around the
world.
Research on the Web
The Internet is especially useful for conducting investment-related research. Through
the Web, knowledge gathering is dramatically easier, better, and more cost-efficient.
Essentially, the knowledge accumulated at huge expense by the Western world is available
now to anyone who wants to find it.
Basic news is readily available on the Web. The Web carries about 250 of the
world’s leading daily newspapers, most of which you can get automatically. The
Microsoft news service, which comes packaged with the Microsoft network, is also quite
useful. Financial information is also readily available on the Web and has been
effectively mimicked by America Online. Most of the stock exchanges have a presence on the
Web, and they offer links to companies listed on the exchange that have a presence on the
Web. Industry associations, including AIMR, are there. The Market Technicians Association
has an extraordinarily good site, including a huge amount of shareware. For those of you
who have paid as high as $49.95 for software to analyze data, technically, you overpaid.
You can get it for free from the Market Technicians Association. Brokers are now on the
Web. They can transmit material via the Internet without clogging fax machines, and
getting the material is not dependent on whether the machine is out of paper.
The Web contains a wealth of information on countries, which makes doing research quite
easy, particularly for those countries that are hard to visit. Take Cuba, for example,
which I think is going to be an attractive market. Activities there are quite easy to
follow on the Internet through about 100 home pages from Cuba. You do have to be careful
when you search for Cuba, however, that you do not get all the “scuba” sites.
For Americans who cannot travel to Cuba, these home pages are a wealth of information.
Iran is another country that Americans do not know very much about—or else, what
they know, they do not like—but it is a large country that I want to start following.
Iran has about 50 Web sites, although some of the better sites originate outside of Iran,
away from the censorship. China has about 2,000 home pages in various places. Russia has
about 500 sites in Russia, but, if you cast the net wider, a total of about 1,200 sites on
Russia is available.
South Africa is an example of a relatively small country with good Web coverage. In
addition to the usual tourist sites, the government has a couple of sections that are
extremely good. The newspapers, including the Mail & Guardian, which is an extremely
good newspaper, and a few magazines are also there. The ANC news wire gives daily news
from the African National Congress. The Afrikaners also have a page, so you can check both
sides. And the Zulus are represented. The South African Investor’s Guide gives you a
quarterly review of all the companies listed on the Johannesburg Stock Exchange. One very
innovative source of information on South Africa is the media teaching case the University
of Virginia provides for Project Cape Town. The case is designed for teachers in Cape Town
to use multimedia in teaching students in order to improve their educational levels
quickly. Virginia runs the course continuously for teachers in Cape Town, but because it
is on the Web and open, you, too, can go in and participate.
For the wine connoisseurs, the Web has a couple of vineyard tours. “Alas,” I
said, “How good is a virtual vineyard tour going to be?” The page said,
“Take a glass of your favorite wine, put it beside you, and then come tour the South
African vineyards with us.” My favorite wine usually comes in a box, and it is pretty
cheap, so I hope the South African wines taste better than that—but I would not know
the difference anyway. You can also have your dreams analyzed by a South African
psychotherapist.
Another important attribute of the Web is that you can contact people whom you might
find hard to contact otherwise. Before the Web, when I traveled to a country, I tried to
meet representatives of the opposition political party, face to face, which was always
difficult. In Argentina several years ago, for example, I wanted to meet some Peronistas,
but no banker would admit knowing any Peronistas. Similarly, I had difficulty meeting a
Zulu in South Africa. Now, I can find Zulus on the Web. Almost every South African
university and even several high schools have a presence on the Web.
Company research done on the Web is also quite useful. One can follow, for example, the
events of a Russian optics company in St. Petersburg called “LOMO” for its
formal designation, Leningrad Optical Company, on the Web. Its site includes a factory
tour, in pictures, that is updated every two months. Most major Western companies have a
major Web presence, and many will maintain bulletin boards logging questions and answers
from shareholders and analysts.
As an aside, I have often wondered whether it would be legal to hold a board meeting in
cyberspace. No one has defined legally where cyberspace is, so announcing which country
such a meeting would be held in would be difficult. For those of you who are investment
bankers, I encourage you to think about how initial public offerings might be done in the
future—where and under what set of regulations. The whole notion of securities
regulation is going to take a major step forward. (Immediately subsequent to this talk,
publicity was given to the first Web IPO and commission-free trading in company stock, WIT
Brewing. One commissioner took the initiative to encourage the use of technology to
improve investor access and information using the Internet and the Web.)
Conclusion
My challenge to you is to compare the alternatives. A visit to South Africa from the
United States, for example, requires probably a week of preparation, a week there, and a
week of decompression on the other side—a total of three weeks, assuming we are
efficient. Compare that with a day on the Internet. How much information could one get on
South Africa in the course of a few hours on the Web? The information might be different,
but it is going to be a large volume in a short period of time. You would understand the
culture and the issues, and you could gain a lot of information that is hard to find out
otherwise.
According to that well-known fan of investment management, Bill Gates: “Anyone who
is not intimately involved with the Internet and the Web does so at extreme peril.”
This statement was made just three months after he brought out and was about to scuttle
the Microsoft Network. I cannot think of anyone this statement would apply to more than
investment analysts. For those of us who are dedicated to moving our craft forward, being
ahead of others, and using the best tools available, the Internet is our mandate. I would
much rather have an Internet connection than a paper atlas as a guide to today's world.
For a further discussion of this topic, please see Dean LeBaron, “The New
Investment World,” in Exploring the Frontiers of Global Equity Investing, edited by
Sanjiv Bhatia (Charlottesville, VA: AIMR, forthcoming).
© 1996 Dean LeBaron
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