I recently had the opportunity to re-read John Gadrey Saxe’s (1816-1887) poem, The Blind Men and the Elephant.
The poem showcases the famous Indian fable that tells the story of six blind sojourners that come across an elephant. Unable to see the whole animal, each blind man creates his own version of reality from the small part that he could feel.
I’ve often found the poem directly applicable to the field of thematic investing yet, now, taking into account the full extent of disruption prevalent in the markets, I believe the poem rings with alarming clarity.
Investment analysis has never been easy. And, we would suggest that it isn’t going to become any easier in the future especially when taking the view that markets are complex adaptive systems. Never before in human history have we lived in a world that has been so interconnected and ensconced in accelerating change. Albert Einstein once remarked: “Without changing our pattern of thought, we will not be able to solve the problems we created with our current pattern of thought.”
As we strive to better understand the direction and dynamics of the long-term market environment, systems thinking is increasingly becoming a compelling tool for making sense of this world.
Systems thinking has its foundation in the field of systems dynamics, founded in 1956 by MIT professor Jay Forrester. The approach to systems thinking is fundamentally different from that of the traditional form of analysis which focuses on how things being studied interact with other parts of the system. Instead of approaching analysis from a reductionist perspective, systems thinking works by expanding its view to take into account larger and larger numbers of interactions. The premise that underlies systems thinking as a basis for understanding phenomena is that the whole is greater than the sum of its parts.
Its DNA is grounded in seeking relationships between parts and processes, examining tensions, dilemmas and conflicting views and teasing out potential implications. It enables investors to engage the world on (an approximation of) its own terms and provides a foundation to establish strategic foresight in a world awash in change and complex interconnections.[1]
We believe there are four major trends (structural changes) playing out in the world currently:
- Evolving global demographics
- Growth differentials in emerging and developed economies and a disorderly world
- The degradation of natural resources
- Further development/adoption of disruptive technologies
As we wrestle with the interrelated factors associated with these trends and consider inputs, costs and externalities, it is our ambition to use systems thinking to keep us properly sighted and establish a coherent and functional forward perspective. By way of example, we are actively employing a “systems view” to the topic of sustainability in an attempt to reveal the interrelation of several issues, enabling us to broaden the set and complexity of second order risks and opportunities for investors.
We aim to be a team that is unafraid to grapple with the elephant in the room (with apologies…).