Caution: Social Media knows YOU

Before the advent of social media and blogging, one's conversations, preferences, likes, dislikes, consumer behaviour and activities were discussed or done and then vanished or remained as memory that faded with time. Now, as consumers and citizens have converted these into recorded actions on social media sites such as Twitter (thoughts and conversations), Facebook (preferences, activities and more) and many other similar websites, these remain as a record over an indefinite period of time.  Every website you visit, comment you make, link you share or product you buy is recorded and stored indefinitely.

The question is when will this data be used to create a profile of you, who you are, what do you and everything around you.  Essentially, these social media sites now have the data to enable them to know who you are, what you like to do, where you go, who your friends are, what you buy and by synthesising these data can understand you better than you understand yourself or any of your friends or family understand or know you.

The risk is that governments (by decree), companies (through purchase) and even illegal enterprises (by hacking) can, at some point in the future, access this data, combine it to create your profile and then use it to for their own means.  Yes, at this point in time, privacy is paramount for online consumers but in the long run, it is not you who determines privacy - it is the government, the companies and the hackers that decide this.  The consequences of a change in practice and policy will be very dangerous to both the individual and society.  Moreover, it will happen after all the data about you has been collected and stored.

The question for you is, how much and what should you be sharing on Facebook, Twitter and other social media sites, and on the Internet in general?

The Balance of Life

Finally, everything comes to zero in the balance of life. What we have gained in one dimension of life, we have lost in another. The size of our achievements is balanced by the impact of our failures. Sacrifice in youth yields to bounty in old age. We should work in harmony with nature as we are as much a part of it as is the sun, the air and water. Nature seeks to achieve balance and it is more powerful than any man.

ROI on ICT Adoption in Developing Countries

As technology becomes increasingly accessible and permeates societies in developing countries, I believe that the question of whether the money spent or invested in ICT is generating an adequate return on investment (ROI) to justify the expenditure is critical.

In many cases*, the technology being used in developing countries originates in some form from developed countries, for example, patent or manufacture. Since these technologies cannot generate economic returns from patent or manufacture in the developing country then, at the very least, it becomes very important for their usage to be economically purposeful. Otherwise, the valuable, and usually scarce, foreign exchange being used to acquire these technologies might be better used in other economic investments.

When an individual purchases a smart phone, are the features being used for amusement or to generate economic activity? When a government makes large investments in technological infrastructure to support e-government, is the civil service ready to absorb and use this technology? When a corporation implements new state-of-the-art business technology, is the market sophisticated enough to make full use of the additional services offered as a result? It may be the case that in many instances society is not mature enough for smart phones, the civil service organisation may be years away from being ready to accept and effectively use e-government technology and the market in a developing country is simply not sophisticated enough for the new services from state-of-the-art business technology. In the simplest case of the smart phone, even partial use of the features for generating positive economic activity may not provide the required ROI per dollar of foreign exchange invested to warrant the investment.

It might be that investments in ICT should be strategically controlled until society is ready to accept increasingly complex technologies, either through education, maturity or practicality. Should governments then play a role in managing the use and adoption of technology in developing countries?

*I note that some larger emerging economies do manufacture some ICT, sometimes under licence, but there are a significant number of developing countries who are importers and consumers.

Straying Markets

The extent to which financial markets have evolved and the types of trading instruments available has strayed far from the fundamentals of markets in my opinion. Traditionally and fundamentally, a market should allow participants to barter, bargain and strike a deal to trade a tangible asset and the strike price should closely reflect the value of the asset as it is related to the infinite circumstances surrounding the participants. However, in modern day financial markets, I believe trading instruments have strayed significantly from the fundamentals in the name of innovation. The degree of abstraction of many of the derivatives used in modern financial markets away from the real asset has introduced participants and behaviours that undermine the trading process of real assets.

I believe therefore that the move by Germany to ban "naked short-selling" is a step in the right direction to returning financial markets to its fundamental principles. In "naked short-selling", an asset is sold without owning, borrowing or even ensuring that the asset can be borrowed to fulfil the sale. How can a market participant trading an asset that he/she does not own or intend to own be acting in the interest of the real asset? I believe that a participant acting in the interest of the abstraction of an asset can never be interested in the real asset and therefore can never be working in the interest of the market or an economy. Such abstraction of the real underlying asset means that the factors influencing the decisions are not properly correlated to the real asset since the psychology of these participants interested in trading an abstraction of the asset are likely to be different to participants who have an interest in the real underlying asset.

The abstracted derivatives in the US housing market proved to be the fundamental cause of the bust by introducing risk that was impossible to measure and manage. Financial markets must be returned to operation on the basis of the principle of trading real assets.

Financial Models Determine Trends

The attempt to rationalise the behaviour of markets has yielded many financial models which are now being criticised as being a primary source of the financial crisis of the past 2 years. Regardless of whether these models were adequate as a reflection of market behaviour, I believe that the use and adoption of these models had an important role in the impact of financial crises of the past 20 - 30 years.

I believe that the adoption of the popular models for rationalising market behaviour (such as Black-Scholes, Value-At-Risk, CAPM and various Pricing Theories) by large portions of the market players made the basis for decision-making close to uniform in influential segments of the market such as large pension funds and mutual funds. The resulting decisions and bets on stocks and derivatives were geared in one standard direction on the basis of the outputs of these models. Consequently, the average uniformity in decision-making arising from positive outputs from these models would have driven sustained increases in asset prices over months and years since the market participants would have been using very similar outputs from their models. Similarly and importantly, unique negative shocks, events and shifts in sentiment would have created a uniform set of decisions in the opposite direction causing a crisis and further, as Kahenman and Tversky have proven in their research, losses loom larger than gains and therefore probably fed downward spirals, independently of the models themselves.

Revised and new models arising out of the learning from the latest financial crisis, I suspect, will not solve these problems but rather create the similar patterns of gains and losses over the coming 30-40 years though driven by different market factors input into these models, with a large crisis yet again in this period. The ability to predict and model human and market behaviour is a very long way off.

Is risk really risky?

The traditional view of risk and return is that an investor's or entrepreneur's returns is related to the type of risks he or she takes. If he or she takes a large number of high risk bets, the overall returns should be large. As their stories go, well-known and successful investors and entrepreneurs such as Bill Gates, Richard Branson, Muhammed Yunnus and George Soros have tread unconventional paths and made bold decisions which have determined their success. But while general society views their stories as a set of bold and risky decisions, in their eyes were their decisions risky? I believe not - that is to say, to these investors and entrepreneurs, these decisions were very simple to make because, to them, the outcomes were certain.

If these entrepreneurs and investors have a unique way of understanding information which enable them to get a strong "feeling" about the future - a "feeling" which tends towards certainty - then their decisions would be almost based on certainty. Many of these types of people talk about their "gut instinct" and just "going with the flow" and these inclinations are what led them to their success. The decisions made would be viewed as risky and foolish by the average person at the point in time when the decision was made but perhaps the abilities of these investors and entrepreneurs enabled and enables them to process and assimilate information that led and leads to degrees of certainty about future events that the general society or the average person cannot see. Is it that the abilities of these investors and entrepreneurs allow them to see into the future in a way that enables decisions to be made based on a unique view of trends, events and outcomes that tends towards near certainty? I believe so, and further, if someone else had taken any of same decisions as any of one of these unique investors or entrepreneurs, the outcome would not have been the same as the understanding that converts the uncertainty into certainty would have been absent in the average person.

In that case, to try to emulate the strategies, decisions and paths of very successful investors and entrepreneurs is like chasing wind.

Adapting to Clean Technology

People will always tend to resist change, whether it is in their interest or not - it is just human nature. This resistance can be conscious or subconscious in that the resistance will not always be explicitly manifested in a negative manner but may be simply in the process required to adapt. Clean technology is in the interest of mankind's future but the resistance embedded in the process of adaptation means that innovative and radical new technologies may take much longer to become useful as a clean technology whereas smaller and incremental technologies will be the success stories in the short, medium and even long term.


What are the implications?
1) Cleantech companies whose products require radical changes in process, require large investments or require highly special skill-sets, regardless of how unique and valuable they are, will not yield the results or returns that might be expected.

2) There will not be a unique, innovative technological solution to the problems caused by global warming that is financially feasible in the short to medium-term, and maybe even the long term.

3) This may also mean that environmental problems will get worse before they get better as the process of adaptation may not be quick enough to reduce the impact of global warming and the factors that cause it.


What does this mean for investors?
I believe that, for example, technologies that change one component of systems such as cleaner batteries or highly efficient electrical components will quickly gain momentum while technologies that change many elements of systems or require system overhauls such as smart grid technology, while very feasible with clear benefits, will take much longer and may never provide a viable return on investment. Investors who want to make a good return on investment in clean technology should therefore focus on companies pursuing incremental technologies while governments and large corporations should focus on supporting technologies which change fundamentals.

Comments invited.