Book Review: Active Investment in the Age of Disruption

Active investment in an era of disruption. 2020. Evan L. Jones. John Wiley & Sons.

Aggressive central bank intervention and accelerating innovation have increased the difficulty of alpha production from value-based, fundamentally managed investments. The author proposes a well-supported solution from a convenient perspective to oversee direct investment in a major university endowment. He further explains why short-selling skills will have a particularly strong demand in the 2020s.

The game has changed for price-based, fundamentally driven investors. Inside Active investment in an era of disruption, Evan L. Both good and bad companies do well in such situations, reducing spreads and as a result, investors choose stronger stocks and weaker companies are less likely to generate alpha. The problem has been exacerbated since Jones rolled out the book in mid-2019, just months before central banks stepped up their market intervention in response to the Covid-1 pandemic epidemic.

The difficulty of making alpha through price-based methods is further accelerated by the accelerated pace of innovation. As Jones notes, there is no change in the average when an industry is severely disrupted. In addition, start-ups are waiting longer than ever to reach the public with the help of massively increased venture capital. This dynamic gives them more time to go all out for their market share and otherwise throw the industry into chaos before they come under pressure to meet quarterly earnings targets.

He, like several other theses, the author supports his claim about the high risk of corporate obsolescence with persuasive evidence. In 1960, he reconsidered, the average company in the Standard & Poor’s 500 Index had been in business for 60 years. By 2018, that number is down to 18 years, and by 2030 it will be down to just 10 years, Jones said.

Not only will describing these challenges be an effective contribution in itself, but the author also provides credible strategies for tackling them, especially pointing out his comments to the hedge fund manager. He spoke to enough authorities about this. Jones oversees direct investment in Duke University Management Company (DUMAC), which has been the top performer among the National Association of College and University Business Officers (NACUBO) endowment universes for the longest three-year period since 2011. He teaches entrepreneurship and investment at Duke.

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The author’s prescription for extracting alpha in new environments includes portfolio concentration and a focus on key aspects of the company’s analysis, such as price power, switching costs, intangibles, and network effects. Based on his experience, Jones advised managers to refrain from trading about short-term market dynamics and to be wary of rollloops and part stories. Jones added that he has rarely seen if ever fundamentally based managers have been seen to be successful by trading in alternative strategies or short-term market dynamics.

In front of the career plan, Active investment in an era of disruption Arguing that there will be strong demand in the 2020s for managers who can make alpha on the short side. Jones argues that many investment managers are interested in short skills or the necessary curling work. They use exchange-traded funds (ETFs) to keep net exposure low enough to qualify as a hedge fund, which only pays higher fees than long-term funds. Shorts require more intensive analysis than longs, Jones said, and they have unfortunate features Growing As a percentage of net asset value when they are going the wrong way. In this area, his prescriptions include being less attentive than in the long run and bringing variety to short-selling themes.

Jones’s Convenient Point As a Manager of Investors Managers bring invaluable insights to the most important issues facing professionals. Often, investment managers who share their knowledge force readers to make structural changes that threaten their fee earnings. In contrast, the job of an endowment is not to protect the agency’s costs but to maximize its organization’s long-term assets. Investors who are focused on a similar purpose can learn a lot from this book.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.

Martin Fridson, CFA

According to Martin Fridson, CFA New York Times, “One of the most thoughtful and perceptual analysts on Wall Street.” He was named Financial Executive of the Year in 2002 by the Financial Management Association International. In 2000, Fridson became the youngest person ever to be inducted into the Permanent Income Analyst Society Hall of Fame. He has worked as a guest lecturer at the Bacon, Columbia, Dartmouth, Duke, Fordham, Georgetown, Harvard, MIT, New York University, Notre Dame, Rutgers and Wharton, as well as undergraduate business schools at the Amsterdam Institute of Finance. Fridson’s writings have been widely praised for their humor, rigor, and usefulness. He has a BA in History from Harvard College and an MBA from Harvard Business School.

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