Future of Investing is in Human Capital
Historically, the capital required to start companies was high and to maintain them was equally costly. Whether it be in the form of new software systems or giant manufacturing systems.
Not anymore, thanks to rapid technological advances. Now, one can set up a fully profitable company from a dorm room, shelf space to build data servers isn't even a required anymore so you don't even need a garage.
Non-technical individuals can build websites and even mobile apps without needing to know a single line of code.
Commerce companies don't need to hold inventory, own warehouses or even the manufacturing plant. They also don't need to own delivery trucks either, thanks Jeff.
I can only imagine this development of 'steps' disappearing from the business operations to continue. Not to mention the "capital light-ness" of companies to continue as well. Companies don't even have offices anymore.
The largest cost to a company will now be on people.
With that, the future of investing will be on human capital. The acquisition, and development of talent.
It's people who will build the IP for the business. The people who will amass a books of business relations and people who will build up amazing software applications and beautiful design.
The talent war in Silicon Valley is nothing new. It's common to hear about software engineers hopping from big tech company to big tech company as they get pay bumps. I've also heard of stories of engineers who are merely hired and paid a large amount of money to keep them at the tech giant so that they don't go off to help a budding competitor. Even in Toronto, I've witnessed a situation where US tech giants were poaching engineers from startups here. Merely to cripple the startup by sucking out all the engineering talent, irrespective of whether the talent was good or not.
With the continually fast-changing business landscape, made possible by tools that reduce the number of "steps" a business transaction needs to take, companies must also learn to pivot their strategies.
As an investor, I've constantly studied businesses that have been able to sustain a competitive advantage for 20+ years and at the crux of these businesses was the ability of the company and it's people to iterate, respond and thrive in the ever-changing business environment. As the rate of change increases in the world, I can only imagine how much more crucial the company's people will be in establishing any form of competitive advantage.
Per Howard Marks, out-sized returns will happen when you are 1) Right and 2) Non-Consensus. Hence, to find opportunities, one must look where the market is still inefficient and misunderstood. Over time the masses will come to saturate the market soon after.
Such a field is in the area of human capital investment.
With most firms still heavily relying on the model of optimizing the management of numerous talent channels (i.e. Indeed, Ziprecruiter etc..) and obsessing over applicant tracking systems, the bigger picture has been lost. The reliance on an abundance of VC money (an industry that was inefficient/misunderstood that now has a mass inflow of capital from lemmings) has resulted in companies adopting the "spray and pray" model of acquiring an "index fund" of applicants. Practically becoming the S&P 500 and letting people trickle in and out.
You also can't "screen" for them with factor based metrics. Just like how investors screening for Sales growth or ROE metrics won't find the best companies, recruiters screening for school or employer brand names will not find the best talent. Traditional metric scanning is for suckers.
Sure there are arguments for needing "fast growth" and all that. But investing in a basket is no way to gain out-sized returns. It's a way to get average returns with VC money (which ironically seeks un-average returns).
As is the case for successful investing, an investment approach in people should also be focused. Focused on acquiring and developing the best performers. It's true that you won't know until you hire. Same for an investment, you won't know until you invest. Hence, acquiring is only the beginning and continued emphasis on developing the asset is essential. A development process that doesn't look to exit out of the person in 5 years (like a PE fund) but to have that person grow within the company for a long time (think Buffet's idea of never selling a stock).
The future of investing is in human capital.
It's still a highly inefficient market that has been neglected, with incumbents who can't see their own inefficiency in the acquisition and development of human capital.
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