Stan DeLaney joined Morgan Stanley as a retail and media analyst in Investment Management in 1999. He moved to the Counterpoint Global team, which focuses on investing in unique companies that can be much bigger due to strong underlying fundamentails, in 2004. He earned a bachelor’s in engineering from Duke University and an MBA from Stanford University’s Graduate School of Business. DeLaney shares his insights on Spotting Disruption in this Morgan Stanley Minute.
Disruptive change research evolved from the team’s strong culture of innovation and evolution. We recognized that having a resource dedicated to identifying and analyzing big themes and emerging topics could be a meaningful contributor to understanding the long-term competitive advantage of companies, industries, sectors and geographies globally. We build frameworks to understand the nature of the paradigm change and where there are potential opportunities for value creation and value destruction. Over time, the work has helped us avoid some vulnerable industries and allocate our time and resources away from them.
Disruptive change research also provides broad insights that can bolster or challenge the company-specific ideas generated by our sector- and industry-oriented investors. The early work included the digitization of advertising and the implications for traditional and internet media companies, as well as software as a service as a challenge to more traditional, costly, bespoke hardware and software solutions. More recently, we have addressed shifting consumer preferences, transportation as a service, and robotics.
Typically, ideas come from one of three sources. The first is an informal reading network that started organically among the investment team members over 15 years ago and now includes a broad group of people who share articles, blogs, or papers on topics or ideas they find interesting. Over time, many disruptive ideas have bubbled up from the reading.
The second source is the ongoing dialogue the investors on the team have with company management teams. Given that we are long-term investors, these conversations revolve more around growth opportunities and strategic challenges facing the company rather than trying to speculate about next quarter’s earnings report. The third is my personal network, which includes industry, academic and business school contacts, as well as venture capitalists who are seeing really interesting technological innovations.
As an engineering student, I was constantly using the scientific method, which involves formulating a hypothesis, testing it, and retesting it repeatedly to prove or disprove whether it was correct. This is very similar to testing an investment hypothesis on a company or sector; collecting data that will ultimately support or disprove theories on how well the company can perform in its competitive landscape.
Once I have studied a specific topic, the scientific method has taught me to frame relevant questions that I needed to further understand before proceeding. For example, I’ve recently been studying the aerospace industry, as well as the possibility of space tourism over the next decade, which leads to a host of related and relevant inquiries: How many people would actually want to travel to space? How would a company prepare customers for space travel?
It’s that constant search for data and fitting the answers into a larger context that has prepared me for this differentiated role, especially in technology, where fast-paced disruption is the norm.
A huge element of this role is being well informed about the global economy, in addition to consumer trends and business fundamentals. I often tell students to read widely—newspapers, blogs, trade journals, anything that enables them to remain current with new products or ideas that are beginning to take hold and may have a major effect on the status quo.
One of my favorite recommendations is the book Moneyball. It focuses on how Billy Beane, former general manager of the Oakland Athletics baseball team, used sabermetrics, a method of statistical analysis, to assess player performance and assemble a winning team despite having a smaller budget than his competitors. By using sabermetrics instead of the standard methods of player evaluation, Beane set a new standard in judging player talent; many Major League teams now use sabermetrics as an integral part of their scouting strategies.
Overall, disruption is really about imagination—seeing markets in entirely new and ingenious ways.