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Old school

Saturday, November 12, 2016 11:56
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DOUG By Guest Blogger Doug Rowat

As a kid I hung out at the arcade—a lot. Space Invaders and Pac-Man were favourites, but, like Pete Townshend, I also played the silver ball. So I’m old school, and the latest Xbox games will, in my mind, never compete. Similarly, social media is a tough sell for this middle-ager.

To be ‘fully connected’ in 2016 means, at minimum, a Facebook, Twitter, Instagram, LinkedIn and—possibly—a Tinder account. I have none. Now, while I’ve personally resisted social media, there’s no doubt that technology in a larger sense—hardware, software, IT services, wireless networks, etc.—is very significant not only to my daily life, but to my investments as well.

I’ve highlighted before on this blog the inescapable reality of an aging world. Naturally, this will mean repositioning portfolios in the future to capitalize on these changing demographics. More health care sector exposure, for example, would be one obvious way to benefit. But so would more technology exposure. Social media and Xbox aside, technology permeates every part of my life: my smartphone, my laptop, online banking, online shopping, music and video downloads and streaming, software systems for managing client accounts, etc. I may not be a millennial, but using technology is critical to every part of my day. The world may be getting older, but its use of technology will not diminish.

As proof, below is the expected ramp-up in global data traffic driven by many factors including more cloud computing, more electronic devices, expanding Internet access, higher bandwidth demand (more video content) and just more mobile networking in general. An exabyte, by the way, is one quintillion bytes. To contextualize a quintillion bytes, it’s apparently the equivalent of 50,000 years’ worth of DVD video.

Global IP Traffic Forecast—22% CAGR


Source: Cisco

So data-traffic growth will be massive. Not only does this mean that consumers and businesses will shift and employ more technology (more e-commerce, for example) but the entire infrastructure that supports this shift (servers, storage and optical fibre, for example) will expand dramatically as well. This is more than any blog reader needs to know, but I now buy my underwear online.

The online discounts are attractive, the delivery is fast and often free and I can’t try underwear on in the store anyways (for good reason, this is frowned upon). By creating efficiencies and convenience, technology has profoundly changed consumer behavior and business infrastructure. I also consider other ways that technology has personally changed my life in just the past decade:

  • I no longer have a landline in my home.
  • I download or stream almost all my video content. Brick-and-mortar video stores are long dead.
  • I virtually never pay cash. Tap-and-pay accounts for at least 90% of my purchases now. Here in Toronto, I even tap a card for the streetcar.
  • My smartphone connects virtually everywhere. Amazingly, it was once a selling feature for telcos to offer a wireless signal outside city limits. My smartphone is also my de facto computer as I use it more than my laptop. And who would have thought I could ever confirm an online payment with a thumbprint?
  • I forget the last time I went to a concert using a paper-based ticket. And a bill payment requiring an envelope and stamp might occur once a year at best.
  • Finally, I’m becoming more aware that if Elon Musk can work it, my kid might actually live on Mars.

These are just a few examples of technology’s transformative power. An aging global population will inevitably subdue demand across many industries, but technology I believe will be an exception. Technology will always evolve to meet needs and reshape our behaviour. And if it improves our lives, we will adopt it regardless of our age. In fact, it will only assist us as we get older, particularly with medicine and medical device development. Technology also easily and constantly crosses over into other industries.

Could you imagine the health care, financial services or telecom sectors not employing technology or not benefitting from technological advancements? So if technology is largely immune to a demographics-driven slowdown it should therefore be part of your long-term investment strategy. Currently, technology accounts for a 6–7% weighting in our client portfolios—roughly double the technology exposure of the Canadian market, and we will almost certainly increase this weighting over time.

Technology might, at times, be unfamiliar (my millennial staff recently educated me about ‘Snapchat’), but investors must embrace it. Otherwise it’s, well, game over.

Doug Rowat,FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.


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