TRANSCRIPTS OF
DEAN LeBARON’S
APRIL 2000
|
Paying for Noise |
|
|
Russia: A New Beginning |
|
|
Downside of Networks |
|
|
Tracking Elephants |
|
|
Cracks in Net Company Practices |
|
|
Primacy of Finance |
|
|
Research Day at FAME, University of Geneva |
|
|
AIMR in Zurich |
|
|
Ideal Investment Manager Compensation Plan:
(portfolio return/benchmark return)x(1/R2 )= factor applied to base fee |
|
|
Swiss Go Wireless |
|
|
Market Shot Across the Bow |
|
|
Poor |
|
|
Subliminal Messages in Investment Ads |
|
|
Performance Measurement Flaws |
|
|
Identity |
|
|
Western Farm Subsidies Are the Barrier to
Success for Poor Countries |
|
|
LOCATION, Location, location |
|
|
Punishment and Sanctions |
|
|
Big Decisions |
|
|
Alchemy |
April 2000 Videos
Links: April 11 (5 links including 3
videos), April 12, April 19: still picture, April 25, still picture, April 26,
waterfall video
April 3, 2000
Paying for Noise
It
has long been a goal of company managements to pay for output rather than time.
Incentive systems are as old as economic activity, perhaps. The milestone study
that I first remember in this area was the Rottesburg (?) study of 1927 which
was attempting to demonstrate the relationship between the light level in a
factory and output of assembly workers. Instead of developing that connection,
it demonstrated that worker output went up when there were people in white coats
and clipboards running around. In other words there was an unintended effect.
And so there may be today as we develop incentive systems with shorter and
shorter time frames, quarterly for traders, annually for management people,
occasionally but just very occasionally out as long as three years for some
systems. But the tendency is in producing for short term. And as we do we may be
getting not only getting unintended effects, paying for something else that we
didn’t intend to motivate, but we are certainly getting short-term noise which
therefore confuses the system and makes the system behave in ways of producing
behaviors that we really may not wish. There’s a lot of noise in economic
systems. And the shorter the time frame that we go with our imperfect tools, we
come up with systems that are counterproductive. I fear especially for
management people in technology companies and CEOs of large companies who have
long since crossed that line where we’re being counterproductive and I worry
about these systems.
April 4, 2000
Russia: A New Beginning
I
have resisted commenting on Russia and Putin’s election both just before the
election and just after. I thought there was more than enough comment and
television coverage and it was not necessary to add anymore. Frankly, I think
it’s a non-story. There’s no particular mystery here although in connection
with Russia there is always a mystery wrapped amid a riddle. Now it’s the
other way around. The riddle is on the outside. But no matter, in the case here,
it is not a triumph of democracy. The election was most likely not fair but the
outcome was going to come in that direction anyway one way or another. It is a
triumph for a rule of authority in Russia. It is the end of the earlier phase of
flirting with accommodation as being friendly and buddy to the West and now
there will be as has been said, a businesslike and tough relationship. Yes it
will be a good place to do business. Will it help the people, impoverished and
have been made worse in the last ten years? Probably not. But they will
understand what the rules are and they will obey. Yes, the pride of the Russian
peoples will return even though their bellies will not feel better. Foreign
investment will come in and in particular there will be a reversal of capital
flight by the Russian oligarchs. The oligarchs are the ones who put Putin in so
clearly he will not go after them, at least not the big ones. There will be some
cleanup, a well publicized cleanup of lower level corruption and it will
indicate that you’d best behave according to the power structure if you want
to stay in business. But the big ones aren’t going to be touched and they’re
still running amok today. No, it’s not a mystery, but it’s going to be tough
for the United States. It’ll be good for business, but I’m not sure we’re
going to like it. That’s why I haven’t said anything about it – it seems
so clear.
April 5, 2000
Downside of Networks
Some
features of the new economy which we consider to be favorable can be a time bomb
when we just turn the sign around the other way. One of those is networking. Of
course it is important to be interconnected with everyone else so that we can
have comparative advantage operate at its best form, thereby the best
participant is the one who gets the most business, who does the most good
things, and the worst in an evolutionary sense in a fitness landscape, gets
knocked off and wither away. This is exactly the way a network should operate in
its most unconstrained fully information system, almost without a particular
designated leadership or authority.
However,
the network can have its downside. In the first place the network can be
disrupted by disease or virus. We’ve had several scares of those, Y2K was one,
individual viruses that permeate computer systems by hackers is another, and
none of us really know how vulnerable the electronic circuitry would be to an
accidental or intentional nuclear blast in the stratosphere which shocks with an
electronic impulse most of the electronic circuits so they cannot function, the
new type of warfare. Just as we would not want to be in a theatre when there is
a disease epidemic going on, so we do not want to be in a network when there is
some problem which may pass through the network very quickly. So
interconnectivity, yes, it’s a plus, under conditions. But we may well want to
be aware of decoupling and hiding behind the dreaded firewall again when
problems occur. It’s one of the time bombs of the new economy.
April 6, 2000
Tracking Elephants
Market
watchers accumulate a variety of signals. Things like a longstanding partnership
like Goldman Sachs going public, roaring bulls on the cover of Time,
Newsweek, Business Week
and Fortune at the same time. Tracking
stocks are another phenomenon that will be considered a timing device for this
market. It’s well known that I’m not a real fan of tracking stocks and in
particular the largest tracking stock of all, the one that AT&T is planning
of its wireless business is especially timely perhaps because it seems like
it’s the only way to unlock value. Unlocking value is the current mode of
discussion. Presumably analysts are unable to make the calculations necessary to
determine what are the variables inside a company’s divisions. Instead, one
must illuminate them with the notion, the false notion that is, that a tracking
stock is really independent of the parent. Instead it’s still an interlocking
web of crosscurrents, of profit formulations which is at the discretion of the
parent and internal pricing. The last tracking stock due to come, which is
AT&T may well yet be one more signal that will go down in the history books
that this market phenomenon is not something that occurs every ten years or
every generation but perhaps once in a century.
April 7, 2000
Cracks in Net Company Practices
Perhaps
it’s not surprising that there would be some cracks in some of the premier
technical companies in their practices. There’s been so much money floating
around, so carelessly, that one is bound to think that there are times to get
out. I do believe the first item to be most telling is the pattern of insider
trading not just in one’s own stock, but in those other stocks where strategic
relationships and deals have been discussed. It’s pretty clear that in Silicon
Valley it’s become more interesting to talk about stock prices and how to
exploit them than algorithms and how to put those into new programs. Also
accounting practices have come into an area of challenge. Accounting practices
are loose anyway and subject to interpretation, but particularly in the case of
revenue determination it should be fairly straightforward. But when the nature
of business is not to be business but to achieve a status to raise money,
accounting practices have a real temptation to be tweaked. And finally,
companies are spending more time increasingly enforcing patents on their old
ideas than coming up with new ideas. The new technology is relatively thin, but
rather than exploiting all new ground, new winches with old technology, and
sending the patent lawyers out on the trail to enforce old ground, suggests to
me that the pace of innovation has slowed down. It’s very unfortunate.
April 10, 2000
Primacy of Finance
Finance
is intended to reflect economic behavior and its anticipation. But it is time
for economic behavior to this change from forecasts to reality. Today, finance
is largely decoupled from economic reality. Certainly so in many of the most
interesting and most advanced companies. Instead companies are being forced to
make uneconomic decisions for the business in order to unlock value, in order to
stave off the difficulty in effect of a revolt of management depending upon
stock options at progressively higher prices for their principal source of
compensation. About half of the nation’s wealth in households reflects equity
prices today, so it’s no wonder that in the concentrated form in companies
that finance has become the driver rather than the business of developing the
economic activities of the enterprise. Finance is often the glue which holds
different parts of the company together, or in this case, the glue, the pot, the
glue brush and everything that is going on becomes part of finance. Economics is
being perverted, not aided, by this development.
April 11, 2000
Research Day at FAME, University of Geneva
Research
Day Program http://www.deanlebaron.com/misc/rd.html
|
FAME Website http://www.fame.ch/
Talks:
Borel http://www.deanlebaron.com/realmedia/apr00/borel.ram
|
Barone http://www.deanlebaron.com/realmedia/apr00/barone.ram
|
Wermers http://www.deanlebaron.com/realmedia/apr00/wermers.ram
Three
years ago a group in Geneva founded the International Center for Financial Asset
Management and Engineering (FAME), the European counterpart to MIT’s Financial
Engineering Center which was started under the direction of Andy Lo although
this one was intended to be a virtual center, where the contributions would come
by videoconferencing and meetings were held which drew upon resources around the
world. Switzerland is a place where it’s difficult to get work permits for
visiting faculty and the tools should have lent themselves to establishment of a
virtual center, but instead it is pursuing rather more conventional lines of
having meetings and promoting research on an in-person basis.
I
attended one of those meetings this past week and attach two presentations of
roughly half an hour each. One’s from an American professor, the other is from
an Italian on topics of interest to Europeans and others. My general conclusion
was that the quality was good. Most of the attendees were students however, very
few were practitioners. There is not much interest on the part of the
practitioner group in Geneva apparently to attend the conference. And the
research was very heavily dependent upon what was initiated in the style in the
North American community, very little had taken off in pursuit of its own path.
You can judge for yourself. You may just want to see clips from the two papers.
It’s too bad; I would have encouraged FAME to go ahead with its original
objective rather than try to recreate in another location what was already
present elsewhere.
Opening
of AIMR Conference in Zurich and Link to presentation by Peter Chambers, CIO,
Gartmore http://www.deanlebaron.com/realmedia/apr00/aimr.ram
Spring
is the season for investment conferences. On the day following the FAME
conference (see April 11 entry) in Geneva, AIMR, Association of Investment
Management and Research, held a major European investment conference in Zürich
in association with the Swiss Society of Investment Professionals. The audience
was sparse, a little less than a hundred, and the program was ambitious,
covering most of the topics of investment concerns, perhaps too ambitious in the
sense that no topic could really be explored in any depth. But the speakers were
topnotch and it was well appreciated by the people who were there. I’m
attaching a clip showing the opening of the conference by Katie Sherrerd,
AIMR’s Senior Vice President in charge of many of these international affairs
and other things, a longtime management person who has brought AIMR to its
distinguished level of coverage and competence. You can see the opening of the
conference and that’s followed directly by Peter Chambers, who is the Chief
Investment Officer of Gartmore, talking about various investment issues of
comparative analysis. Curiously it was just several days before he spoke, that
Gartmore was sold. So he was clearly well involved in comparative analysis on
investment firms and their pricing. I think you will enjoy this clip and learn a
great deal about comparative work in security analysis from Peter as well as get
a sense of the structure and good work that’s being done by AIMR and Katie
Sherrerd.
Investment
management clients frequently argue that their managers are inappropriately
compensated. Many managers, in fact most, are compensated as a percentage of
assets and assets go up and down depending upon the market or the relevant
benchmark. Increasingly, managers cling to a benchmark since usually second or
third quartile performance, in other words, clustering around the mean, one or
two standard deviations from the mean, is unlikely to cause the manager to be
fired whereas being in the bottom of the pile, the fourth quartile, is quite
likely to, and the chances of a manager who tries to be in the first quartile
are great that he’ll come up in the fourth. And so, occasionally people break
off and start hedge funds where compensation is a percentage of profits, usually
20%, when a manager is hot. But there is a solution in between these two
alternatives. And I suggest the formula at the title of this video and that is
the manager is compensated on the basis of the percentage return that is earned
from being away from the benchmark. Under these circumstances the manager has
the incentive to be different and at the same time is compensated for being
different and right.
Perhaps
if the market is turning it is extremely important to compensate in this fashion
rather than cluster around the comfortable middle. The discussion is about the
appropriate time period. The answer should be as long as possible because you
are trying to get rid of much of the statistical noise that is inherent in
performance figures. However just as a practical matter people use short time
periods, three years or less, that actually is what will probably be done. No
one is likely to compute performance on the basis of the 72-year period that may
be required in order to have statistical purity.
April 14, 2000
Swiss Go Wireless
It’s
important to recognize that communications,
especially communications by computer, may well be superior in Europe to
that which we are accustomed to in the United States. In the first place, ISDN
is much more extensively used here. I have for instance three ISDN lines coming
into my small place on the shores of the Walensee. And not only is it that
we’ve gone more for broadband in home access in Switzerland, but that prices
have been extremely competitive. Swisscom to its distress has just announced
that it will reduce its workforce by one-third. Of course it was more like a
more typically bloated government monopoly before so it is catching up perhaps
for past ills. But no matter, it costs less now to make a phone call from Europe
to the States than vice versa even at the US discount rate. That is extremely
noticeable. And furthermore the wireless penetration is much better in Europe.
The major wireless equipment manufacturers like Ericsson and Nokia of course are
European companies and they have really penetrated the market here. One sees
handies on the streets almost as much here as one does in Hong Kong or Shenzhen
which had previously been my all time high penetration places. But because of
the rapid increase in communication need they went directly wireless without
rewiring the place. In the United States we’re having a flirtation with fiber
optics, but I think it will only be a flirtation because eventually things will
move to wireless, probably to satellite communication, but wireless in one way
or another. And Europe is ahead. I’m certainly enjoying it. We should watch
them carefully.
April 17, 2000
Market Shot Across the Bow
As
I make this movie, the stock market essentially Nasdaq and technology-related
stocks in all markets of the world, have engaged in their second week of a big
crash. And the question is, what is the meaning of this? Clearly no one really
knows but punditry demands that one speculate with a viewpoint. And I really
have three scenarios that it could be and let me put the odds of which ones of
those I think are most likely.
Scenario
number one is that we have been going through a bubble and at some point, the
bubble will burst. The bubble has taken the economy, financial systems, the
institutions involved and participated through them in an entire puff up of
something which is essentially unreal and the unreal aspect is the new economy
which really is as I’ve said before the old economy in new clothes or perhaps
no clothes at all if one looks at it.
The
second scenario is that we have just had a normal market correction a bit more
severe than usual in the midst of a rise to a new economy and normal corrections
are highly psychological, occur very, very quickly and come down extremely fast.
This could well be the case here.
And
then also it could well be that this is just a warning shot across the bow as my
friend Walt Deemer says, the crash that tells us that risk and reward in the
future may be somewhat imbalanced. I rather like this possibility, the shot
across the bow that tells us the back up of new issues, which not entirely IPOs
now but rather secondary issues of executives who want to at least realize some
cash from their profits in options and underlying stocks particularly those in
companies which are not necessarily companies that have been tested in the
market, but rather are ideas.
And
I would put the odds of these: bubble, on the order of, oh, 30%, the new economy
that is just a psychological hiccup in the midst of a rise at about 20%, and the
fact that it may well be a warning shot of which there is a long process of
bringing to heel the infrastructure that we have built up, at about 50%. In
other words it’s best to look at this if one can from the sidelines and
observe and I must admit as far as the US market is concerned I have well been
cautious for a long time. I can’t say where my biases come from. But I do
think the odds recommend caution at this point. And caution usually means not
being involved rather than being actively involved.
I
am delighted to see the plight of the poor receive some attention. It did in the
riots in Seattle causing much consternation to the bureaucrats of
the WTO and it is again at the meetings of the IMF and the World Bank in
Washington with Jim Wolfensohn and others wondering why is it that people
don’t realize that these institutions are the ones trying to help the poor.
The reason that they don’t realize it is that the money has often gone to poor
countries to be administered by corrupt officials. I can remember seeing the
world class stock exchange with swimming pools, apartments and private dining
rooms in Turkey in Ankara that had just been built with a World Bank loan that
cost $75 million at a time when it was reasonably clear that stock exchanges
were archaic. Yes, it was built with the help of Turkish construction companies
and provided wonderful, sumptuous quarters for finance bureaucrats in Ankara and
this has repeated around the world. The money has not gone on to help people.
And that’s why they’re rioting and that’s why people are saying why should
we struggle to pay off the debt that went for our corrupt officials. It’s a
travesty in the world that we become so outraged at terrible, terrible cruelties
committed in East Timor and Kosovo and even Chechnya although we don’t do
anything about it because of the nuclear weapons that Russia has, when somewhere
between six and ten million people a year – each year !– die of benign
neglect, medical and famine, most of them are in Africa to be sure, however
these are people just like anyone else and they deserve to have attention.
Meanwhile the attention of the institutions is not really directed to helping
these people with vaccinations or rather simple grassroots activity but instead
goes through the country structures which are so often terribly corrupt. That is
worthy of having riots over. The benign neglect is just as outrageous as the
Holocaust or specific murders that take place in ethnic cleansing or the like.
And with today’s ability to move goods and ideas around, you can’t say, “I
don’t know.” So yes, the riots are appropriate. Yes, the institutions that
served the world after World War II are inappropriate and three, we have to have
some new solutions to close the gap between the rich and the poor. And until we
do so the riots will get more violent and more insistent and we will wonder as
bureaucrats what’s wrong.
April 19, 2000
Subliminal Messages in Investment Ads
I
like investment ads. They are a real challenge for the advertising people. They
want to say a whole lot and usually, at least in most developed countries, there
are severe constraints over what one can say in an investment ad. That is,
unless you’re a lottery where you can say anything you want for one of the
poorest investments going. But back to the topic: I saw an ad in a Swiss
mountain cable car just recently which I thought was one of the most creative
examples of subliminal advertising I have ever seen. The text said, “high
performance,” and we know that is a code word for profit. It said,
“controlled risk.” We know that is a code word for not losing money, and
then the hands of, presumably, the investment manager, showing one die, three
sides of which had sixes on it. I guess that implies inside information or
cheating. This was for the mutual fund group that offers funds throughout the
Cantonal Bank system works in Switzerland. Yes, it’s probably very
conservative organization, and on the other hand, the marketing people certainly
were not and the subliminal message was very strong. We’ll make money for you,
we won’t lose, and we’ll use every means at our disposal. I hope you like
the picture I took.
April 20, 2000
Performance Measurement Flaws
I
have attended several meetings in Europe this week dealing with Performance
Measurement, a topic of intense interest to investment managers for marketing
purposes if not for their own management control. But these sessions seem to
miss the essential points, at least the essential points it as they seem to me.
Let me mention what they might be. An overarching consideration is that the
performance numbers are not necessarily symmetrical. That is that dirty numbers,
bad numbers, may make things worse but cleaning up numbers that are already
quite clean may not make things better. There’s a threshold and if the quality
of the numbers of an investment management firm were already at that threshold,
and that threshold is probably quite low, then further improvements do not
necessarily enhance the usability of the numbers. Therefore there’s a point
beyond which it makes no sense to go and we perhaps have gone through that point
in terms of many of our requirements. And specifically in the use of numbers I
think there are three basic flaws. One is the assumption that performance
numbers are linear. They are not. They are really complex members which follow a
nonlinear and perhaps a chaotic pattern. Second is we assume that there’s
cause and effect and we break down performance numbers finer and finer in terms
of factor analysis so that we can attribute cause and effect to pieces of the
numbers. I think there’s probably very little scientific justification for
this type of analysis. And finally, we believe that we can take numbers apart,
into smaller units of whatever variety, study them, make some judgments, correct
the management of these small parts and put the numbers back together and assume
we have improved our task. Actually, we haven’t, the numbers are holistic, and
do not lend themselves to symmetry. The field of performance measurement is rife
with problems of the contrast between theoretical understanding, inadequate
statistical analysis and expectations that we are learning more than we actually
should know, overstatement to a great extent and that’s the central flaw of
performance measurement.
Who
am I? We are in the midst of an identity crisis today. Most of us have known
from history that human individuals first started to socialize in order for
their own protection and later began socializing in family and clan groups in
order to specialize, the development of families, in hunting and farming. We
have now reached a stage of increased specialization where each of us is
probably most likely to be incapable of operating on our own. But history has
gone through cities and city-states and finally nations and nations predominated
in terms of their importance of identity for people for perhaps the last two
centuries. But now we are in a very strange predicament in that our identities
are less formed by permanent associations with countries, in fact countries are
breaking up into smaller and smaller units as countries want to break apart in
terms of provinces – the Quebecois, Kosovo, Chechnya whatever. And now
companies want to become increasingly larger and move in the other direction.
Meanwhile individuals see themselves as part of the me generation, forming
temporary alliances, strategic alliances according to their interests at any
given time, whatever cohort they wish to be a member of, but then breaking apart
to no cohort thereafter. The me generation is volatile. Though countries are
getting smaller, companies are getting bigger and individuals who are networked
don’t care because they’re only temporary members anyway. This is an
identity crisis which will have an effect upon culture, an effect on
predictability, but it will make the transition extremely volatile. Who am I?
I’m a different person today than yesterday, and I don’t know who I’ll be
tomorrow.
April 24, 2000
Western Farm Subsidies Are the Barrier to Success for Poor Countries
I
am in the middle of a Swiss farm as you can perhaps see by the barn behind me
with the implements around the outside. And off in the distance you may even
hear parts of the waterfall which makes this one of the more scenic farms
around. But it is a farm nonetheless, a heavily subsidized one, in order to
preserve what’s called the Swiss way of life. The solution to poor countries
is in most cases from an economic side, agriculture and agriculture alone. The
African countries say quite clearly that the developed countries must develop a
plan and implement the dropping of subsidies, subsidies on farms like this,
farms like the United States where at one time I had investments in twelve and
where you could only run on the basis of a subsidized plan. Without subsidies,
agriculture can thrive in very good places like Africa, Papua New Guinea and
elsewhere, with exports to the developed countries but so long as we preserve
our own agricultural markets in defiance of our free market principles these
countries cannot earn money with low value labor. So we must, if we’re going
to be true to our principles, and say free markets, and these countries can earn
their own way, we must learn how to let them do with agriculture. And let places
like this go back to being scenic attractions, not dairy farms, as this is, as
those places in Vermont are as well. They can make their own way in Africa if we
let them. That’s the economic solution. Sometime we’ll talk about health and
education, and they have simple solutions as well.
April 25, 2000
LOCATION, Location, location
Links:
pictures of Valley Entrances to Lake Walensee http://www.deanlebaron.com/misc/gateway.html
I’m
standing in the middle of an old Roman fort about 2000 years old overlooking
Lake Walensee in Switzerland. This fort stands at the junction of two of the
main routes coming up from Italy, then Rome, into Gaul and the Frank countries
in Germany. It commanded this height in order to command in order to extract
tolls from those who had not paid them to come on the main routes. Location was
important and it illustrates a principle of real estate that location, location,
location, are the three most important things. But it’s just a pile of stones
now because technology allowed transport to go around this location so it became
unimportant and is only an historic curiosity. The reason for that is comparable
to the attraction of portals on the Internet because many people will learn to
go around them, for the attraction of large cities, people will learn that
they’re inhospitable places to live in and that it’s important to remember
that as new networks arise they form new relationships and nodes such as this
old Roman fort become only an historic place, a good place to stop for a drink
on a hike, but no more. I’ll include a couple of pictures at the end of this,
stills, just so you can see the commanding position that this fort once held but
does no longer.
April 26, 2000
Punishment and Sanctions
Link:
Wasserfall Slideshow http://www.deanlebaron.com/realmedia/apr00/wasserfall-28.ram
I’m
not sure you can hear me over the roar of the huge waterfall behind me. It’s
dropping down probably in the order of, oh, about 300 feet and it’s very loud.
But I wanted to talk in one of the videos about punishment. Punishment is
something the United States wants to do and has done for a variety of
governments since World War II, punishments other than war. And it has elected
economic sanctions but economic sanctions do not work and tend to benefit almost
no one except other countries who will evade the particular sanction. We have
sanctions in Cuba and they do not hurt Castro because he’s interconnected to
other governments along with other government officials. They do hurt the Cuban
people. Similarly in Iraq, we want to hurt Saddam Hussein so we put on
sanctions. They don’t work and everybody else seems to go around them. We want
sanctions against China for human rights the rest of the world quite correctly
just turned us down, and said, that doesn’t work. The United States must learn
that economic sanctions do not work in a fully integrated, global economy which
we have espoused. We need another tool. That tool is not sanctions. Meanwhile,
enjoy the waterfall.
There’s
a lesson in the closing of Interval Research in Silicon Valley. The company had
the best of financing and the best of management with its goal of making major
technological improvements for the next decade. It failed in part because
didn’t know its own lessons of networking and adaptation. Despite the fact
that it was under the management of the former chairman of the Santa Fe
Institute who understands about complex adaptive systems, it ran as a highly
authoritative, closed-in research laboratory. It knew the importance of the
decisions it was making but thought it could authoritatively move forward on
this count. It can’t. Big decisions are often made by indirection, by chance,
and it sometimes comes from mold in bread. The late Robert Morris, when he was
at Fairchild Semiconductor, said if he had known how important the movement was
from uranium to silicon, he probably never would have done it. Bill Gates did
know how important it was to move into the Web from a closed-in networking
structure, but he was an authoritative person who could take the chance. Most
committees don’t take the risks that are necessary to move forward by
indirection and by being open. How do you move forward? You move forward by
being in a position to adapt, by getting information from the network, and by
not really trying to do by direction those things that you think are important
because you will probably use the wrong tools. Yes it is important to make major
decisions but the tools to do so are very subtle and not necessarily
authoritative. Interval Research tells us that lesson very strongly.
The
alchemist is still at work today in modern business. Just as in medieval times
it seemed possible to convert chemically lead to gold, efforts are at work that
way to replace one atom with another. So it’s possible today to convert data,
which is ubiquitous and for all practical purposes, free, into information that
can be highly valued for specific decision making and in fact moves on and makes
the decision directly thereby in many cases supplanting expensive human
resources. And similarly it’s possible today to think of money which used to
have a value in terms of an interest rate and expected rate of return and
increasingly becoming separated from the decisions that are used allocate the
money. Now you have free stock trades, you have venture capital money that is
raised online. Increasingly money is being separated from the decision, and
money is a commodity that can be completely traded or converted into something
valuable as the old alchemists would do, by the way in which it was used and not
its very presence. The trick is to find the alchemist’s formula that is used
today to have the highest value-added. Quite likely that’s in the area of
biology, where we are replacing one gene with another until the creation of
proteins or whatever and we will see an extremely strong value added. Whether
it’s commercially value added or not is a different issue, but it will be
value added in terms not only of lifestyle, but life itself and that’s where
greatest value lies.