Interested in the long-term investment opportunities that might arise from disruption? Watch these emerging trends in the coming decade, says Morgan Stanley Disruptive Change Researcher Stan DeLaney.
It’s hard to think of an industry that won’t be touched in some way by technological disruption over the next decade. That’s why Morgan Stanley Investment Management’s Growth Team has Stan DeLaney. As their Disruptive Change Researcher, DeLaney works with the portfolio managers to detect the big ideas and emerging trends with far-reaching implications for economies, industries and social behavior.
Whoever owns the data will own the technology because machine learning is only as good as the data that gets fed into it.
“Disruptive change is so pervasive that our team looks at all of our investments through a disruptive lens,” says DeLaney. “Our disruptive analysis effort is really about supporting the Growth Team’s strategy of long-term investing, finding companies with a sustainable competitive advantage, and making sure that we aren’t holding companies that could be left behind.”
Here are five big disruptive trends that DeLaney is currently working on, as well as the industries that could be affected and what he thinks investors should watch out for:
“Machine learning has the potential to be one of the biggest disruptors over the next decade,” says DeLaney. The transportation and medical industries are likely to be first in line for disruption, “If we think about what machine learning really is, it’s pattern recognition. We might see radiology and scans detecting cancers earlier than they’re detected today. And it’s possible that in the future we can also use machine learning to scan for genes that might predispose us to certain kinds of diseases.”
To keep abreast of the change ahead, investors should “follow the data,” says DeLaney. “Whoever owns the data will own the technology because machine learning is only as good as the data that gets fed into it.”
One of the biggest investment risks is regulation. “Industries that could be disrupted might seek new regulations and other protections against disruption. Investors should watch this especially in already regulated fields such as medicine and transportation.”
Autonomous driving will be facilitated by the data-processing capabilities of machine learning, but its disruption capabilities are so widespread that Delaney considers it a separate category.
“With autonomous vehicles, we think that transportation can largely be converted to ride-sharing,” says DeLaney. “Cars are typically the most expensive purchase after a home and are costly to maintain. With 90% of accidents caused by human error1, regulators and consumers are also expected to be interested in autonomous vehicles as a potentially safer alternative.”
Other industries may be indirectly affected, says DeLaney. “On average, a commuter spends 55 minutes a day driving2, so that’s time they get back. One of the things they are likely to do with all that time is to use mobile web services, which we think could be big beneficiaries.”
Investors should also carefully watch what the incumbents in the car industry do. “Are they acknowledging this disruptor on the horizon? And what are they planning to do about it?” asks DeLaney. “Some have made strategic moves, but some have not.” As with other disruptive changes, regulation will also play a role in determining where and how soon autonomous driving becomes a reality.
“This is an exciting technology that will likely have multiple applications,” says DeLaney. “We can see this being useful in education and training because it basically overlays virtual images onto reality.” Augmented Reality (AR) can simulate real-world scenarios. “That allows orientations or training to take place in a safe environment vs. a real-world environment that can be more dangerous. Surgeons will be able to practice complex procedures before operating on patients, for instance.” AR might also have entertainment value, by enabling consumers to enjoy unique experiences like sitting on the field at a sporting event or traveling to exotic locations.
AR is in the early stages of development, so the full potential will unfold over time, says DeLaney.
In theory, Blockchain could disrupt any transaction that requires sharing a document or contract. Financial firms are most likely to see disruption because Blockchain’s shared-ledger approach could dramatically affect the time, cost and complexity around how transactions are recorded and how custodial business is done, says DeLaney. Mistakes, such as instances where ownership claims have been made on more shares than a company has issued, will be relegated to the past. “That won’t happen if blockchain software is developed and trade data is kept on one shared ledger, which is encrypted and updated in real time and openly available to participants in the transaction,” says DeLaney.
He believes that the real-estate market could also benefit from Blockchain, especially in certain emerging markets where centralized record-keeping can be subpar. Investors should keep watch on regulations that might impact Blockchain’s use. “Here, I think the big risk is institutional pushback. There are many people in organizations whose jobs can be eliminated with the adoption of Blockchain.”
CRISPR is a new tool for genetic research that allows scientists to locate specific segments of DNA and then easily replace or delete them. “This could cause huge disruption to the way healthcare can be delivered today,” says DeLaney. “It offers the ability to cure a disease at the genetic level. For investors, it has the potential to create new industries and disrupt existing medical treatments.”
Investors should watch research and development in the healthcare industry. “The companies that are spending money on research and development, rather than concentrating on short-term return of capital, like share buybacks, are the ones to focus on,” says DeLaney. He adds, however, that investing in biotechnology is difficult, even for professional portfolio managers. “Biotechnology is probably the riskiest of all disruptive technologies to invest in. These companies are usually early-stage companies, with no proven cash flow. It’s also very difficult to know what to invest in, unless you have the expertise in a specific area of biology. Even then, it can be very tricky to anticipate which companies will receive Food & Drug Administration approval and a path to success.”