Churchill Club's 9th Annual Top 10 Tech Trends Debate

Way too many balls in the air. Way too much context switching between work, family, marketing finals, marketing simulation (Sabre), cost accounting assignment etc ad nauseum. I tell myself not to forget the larger goal - to be an entrepreneur or be involved with entrepreneurship in a significant way. I couldn't resist the idea of going to Churchill Club's 9th Annual Top 10 Tech Trends Debate today.

UPDATE: Pointer to SJ Merc Review of the Event.

The basic format of the event was that the moderator or a panel of star VCs would make a prediction. There would be a short debate at the end of which the audience gets a chance to wave a green card or a red card for the prediction.

The VC panel consisted of John Doerr (Kleiner), Steve Jurvetson (DFJ), Roger McNamee (Integral Capital Partners), Joe Schoendorf (Accel Partners). Tony Perkins from AlwaysOn was the moderator.

The top trends from my notes. I've tried to annotate who mentioned the trend.

1. Mobile Devices: There are going to be many more design centers for devices, requiring more "belt space" [Roger McNamee - RM]
2. FCC will approve at least one new broadband network in the next year. More broadband freely available is the best thing you can do to reduce digital divide, improve possibilites for education and its good for VCs! [John Doerr - JD]
3. There will be a web 2.0 "shakeout" in the next 12 months and the "shakeout" won't include mobile. "Shakeout" here means reduced, down rounds of investment. [Tony Perkins - TP]
4. Moore's law will bifurcate to the point where technological advances in memory will precede logic by several years. [Don't remember who said this. Could've been Steve Jurvetson - SJ]
5. Power shift: Shift in economic power to the BRIC nations will profoundly impact current business. [Joe Schoendorf - JS]
6. Active Media: Consumers are choosing active media over passive media which will erode power of today's media companies and will require a re-engineering of the advertising business. [Roger McNamee - RM]
7. Enterprise Web 2.0: Web2.0 functionality will move to enterprise and media in a big way. [TP]
8. The next two years will herald first synthetic life form. [SJ]
   
9. The Brain: Rise of radical approaches to treating brain disease. [JS]
   
10. Going green could be the largest economic opportunity and imperative of the 21st century. [JD, of course!]

I know this doesn't give you the complete picture. I'll try to write some more notes on each "trend" as time permits!

Fundamental Indexing

On a trial basis, I've been trying to roll some of my non-retirement savings out of mutual funds and into ETFs. Let's say I've been taking whatever I'm reading in my finance books a tad too seriously! All skepticism aside, I don't like having to shell out the expense ratio, especially when you read that many mutual funds don't even beat market returns. See excerpt from Investopedia:

The Journal of Finance (Mar 1997) reports a comprehensive study by Mark Carhart on mutual funds over the period from 1962 to 1993. He states that "by 1993 fully one-third of all mutual funds had disappeared." Furthermore, in 1997 the Wall Street Journal reported that during 1982-1992 mutual funds reported average returns of 18.1%, but after calculating in survivorship bias, the report found that this return was whittled down to 16.3%, lower than the 17.5% return on the S&P 500 during the same period. In other words, when we take survivorship bias into account, the average mutual fund underperforms the market.

All that said, I probably will stick with funds like MINDX and MAPTX when it comes to investing in foreign/emerging markets.

With low expense ratios, ETFs are an attractive choice. But which ETF? Armed with new found knowledge about fundamental indexing (from Chapter 4 of BMA as well as Prof Percival's lecture), I did a bit of poking around.

In a capitalization weighted index, the weight associated with a particular stock is based on its market cap. In a fundamental index, that weight is based on some fundamental metric. Dividends appear to be a particularly good metric if you believe companies need to stop screwing around holding large amounts of cash, with no good projects to invest in.

See Prof Seigel's article on WSJ for a detailed description of the fundamental weighted indexes as the "next wave of investing".

The Fama/French world emphasizes low P-E and small cap stocks. Bogle et al in another WSJ article cite a few reasons about why you probably shouldn't be too eager to jump on the fundamental indexing bandwagon. They cite

1. Potentially high management fees for fundamental indexed funds
2. Equivalency of fundamental indexing to picking low P-E and small cap stocks (which Fama/French have shown produces outsized returns)
3. Turnover - say when a manager increases dividends, you're going to have to buy more of that stock. This is not an issue especially if you are investing your retirement savings.
   
4. Fundamental indexes constructed out of dividends as the metric may not be tax efficient. (Long-term capital appreciation enjoys favorable taxation compared to short-term gains such as dividends.)
   

Do your own diligence, but I'm trying out a couple of fundamental indexed funds from WisdomTree. I'm going with Dividend-Weighted ETFs instead of Earnings-Weighted ETFs.