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Harnessing the value of human ingenuity...

Updated: Nov 29, 2017

"The trade of the last 200 years: Long human ingenuity. Short financial innovation." - K. Bass.

It has been well said that; The key to success is to invest ahead of the path of progress. One might add that if you can do so in spheres where infinite demand meets finite supply you have an opportunity for real game changing solutions and as a result the greatest potential and probability for outsized rewards.

“In Fernand Braudel's seminal work; Civilisation & Capitalism: 15th - 18th Century. He states: “In the realm of technology, co-extensive with the whole of history, there is no single onward movement, but many actions and reactions, many changes of gear. It is not a linear process. (…) The history of inventions, taken by itself, is therefore a misleading hall of mirrors. (…) In other words, there are times when technology represents the possible, which for various reasons – economic, social or psychological – men are not yet capable of achieving or fully utilising; and other times when it is the ceiling which materially and technically blocks their efforts. In the latter case, when one day the ceiling can resist the pressure no longer, the technical breakthrough becomes the point of departure for a rapid acceleration.”

As students of history we take this to heart and as such we have devised an investment strategy that focuses on monitoring broad trends and implementing active investment strategies that capture such broad changes and as such avoiding to become blinded by the bright mirrors in the temple of #technology.

As with most investing related matters timing is key, we watch for sustainable long-term trends in society, technology and the global economy to gauge when specific sectors are prone for disruption and the “ceiling can resist the pressure no longer” and we are set for a rapid acceleration of a technical breakthrough in the selected sectors.

Let's take a look at one such sectors, which perhaps represents the power of such long-term trends in the context of history the best; #Energy

We live in an energy hungry world. Global GDP is set to treble by 2060, with two thirds of that growth coming from emerging markets which display significantly greater energy and carbon intensity per unit of GDP than developed markets.

Feeding that energy demand and facilitating growth while minimising emissions will take brave and coordinated decisions on the part of policymakers and innovative solutions from the private sector. Innovative companies are set to reap the rewards of harnessing the winds of change in an industry that a recent Citi Bank report forecasts will be the beneficiary of around $200 trillion (both capital expenditure and fuel) over the next quarter century. History shows that innovations in technology can cause dramatic increases in #productivity, transforming industries and setting whole societies on new paths to growth.

The world is approaching a tipping point in the development of energy technologies that could generate increases in energy productivity on a scale not seen since the industrial revolution. It is difficult if not impossible to talk about energy without mentioning innovation. From the light bulb to unconventional production or clean energy, examples abound. Just to cite a few figures, unconventional gas now accounts for 40% of US natural gas production and renewable technologies accounted for 42% of total power capacity added worldwide in 2012. Take the solar industry during the last 15 years annual installations of photovoltaic systems in the US has grown from 4 megawatts (MW) in 2,000, to over 6,000 MW in 2015. This is a compounded annual growth rate of nearly 70% and a total growth rate of 155,000%. Even during the last year with very low oil and gas prices the renewable industry finished another record-breaking year, with more money invested, $329 billion, and more capacity added, 121 Giga watts, than ever before according to Bloomberg New Energy Finance data.

Over the last 5 years the US shale revolution has upended oil and gas markets in the US and the world at large. At first it was dismissed as unworkable, then it was minimised as unsustainable. Now, having helped drive a massive drop in the global price of oil, it is hailed as an economic and geopolitical game changer.

The electricity sector is quietly undergoing its own transformation, and it is set to yield dramatic economic and social benefits. Thanks to technological innovation, smart government regulation, Chinese industrialisation and creative financial engineering, solar panels are becoming cheaper and more accessible than ever before and the consequences are likely to be profound. #Batteries too, have the potential to change the world just as much as shale has, should the technology continue to improve. That’s because large-scale batteries could unlock the full potential of renewable power, which has been held back by its intermittent nature. #ElectricVehicles are already evolving into a significant reality that is only set to expand and again the development of viable low-cost, large-scale batteries could be the game changer. As mentioned solar panel prices have already plummeted with wide ranging positive side effects, and batteries look set to follow in the future again with significant knock-on effects across industries.

The energy sector offers many #opportunities – now and in the future – and as an investor you can’t afford not to be on the right side of these changes.

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