Without a doubt, the past few years—and probably the rest of this decade—will ultimately be memorialized in the history books as quite unique, given theread more
Investing in the Fourth Industrial Revolution Before It Invests in You
Throughout history, global economies have undergone several distinct transitions in the form of industrial revolutions marking massive transitions to new manufacturing processes. These revolutions have caused major tipping points in history altering many aspects of life, often enriching those who enabled the change. Not surprisingly, some of the most compelling investment opportunities have emerged during economic transitions. This is particularly evident now in the era termed the fourth industrial revolution – a period where technology has become so ingrained that it is shifting our career decisions, how we purchase goods, the path of our commute and how we communicate.
As times have changed, so too have the industries that built our nations. One barometer is the Dow Jones Industrials Average, designed in 1896 to encompass the major industrial companies into an index to gauge the American economy. As the economy has shifted, so have the Dow components whereby the “industrials” title has become largely nominal. To better incorporate the universe of investable companies shaping the modern economy, deletions from the index over the past decade include General Motors, Alcoa and, just recently, General Electric while Cisco, Apple and Visa were added.
Long before the Dow was established, the first industrial revolution occurred in the 1700s as production transitioned from handmade processes to the mechanical. Steam power and the creation of a factory system defined the era’s technological developments. This rapid industrialization of global economies cost many workers their jobs, including a group known as the Luddites, who rebelled by destroying the factories and machinery that caused their job displacement.
By the mid-1800s, the second industrial revolution commenced with the utilization of steel in mass manufacturing. Shortly thereafter, the birth of the chemical and petroleum industries led to the emergence of the auto sector and mass production. Transitioning from the 20th to the 21st century, the third industrial revolution began an era when electronics proliferated which produced the digital age and a shift from mass assembly to automated production.
Now the fourth industrial revolution is building on the third as technologies fuse together at an exponential pace, including the “advent of cyber-physical systems involving entirely new capabilities for people and machines” (1). Examples of the emerging technologies defining this revolution include artificial intelligence, robotics, Internet-of-things, 3-D printing and autonomous driving; all enabled by unprecedented computer-processing power, big data and advanced energy storage capability. International Data Corporation (IDC) forecasts that “worldwide spending on digital transformation will soar past $1 trillion in 2018” (2). While Silicon Valley has a major role in the technology revolution, the investment opportunities are global in nature. To benefit from the shifting economies, Sand Hill recently added an exchange-traded fund which invests in global robotics and automation companies. In addition, our actively managed funds can also lean into the fourth industrial revolution theme.
Unlike past eras, the evolving fourth industrial revolution presents a plethora of investment opportunities. Just as the dot matrix printer became archaic, so has the original robotic dog pet from the late 1990s. Given advancements in robotics, we might soon have to second-guess whether a given “emotional support” dog is real, albeit far longer before we question the authenticity of the owner holding the leash. In the meantime, we will continue to seek relevant investments to benefit from this Industrial Revolution, taking the futurists view via embracing change rather than Luddite’s looking backward.
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