The impact of technology on the investment landscape

View from the dealing floor. Julian Edwards works on IG’s dealing floor: www.ig.com/au

The investment landscape has changed over the last few decades as technology has worked its way into all aspects of the field.

As one would expect, numerous advantages have spawned from these changes; financial statements that were once acquired by means of a phone call and time spent waiting for the package to arrive are now freely available online. Countless days crunching numbers with a calculator and scribbling on a notepad have been replaced by complex financial models created on spreadsheets.

There is no longer a need to pick up the phone and dial out to your broker to place your well thought-out trade in the market – one simply places the trade via their online platform of choice.

The advantages have been matched by several challenges following these technological advancements.

Take the practice of value investing for example; the theory being that an avid investor hunts down a share that is trading at a substantial discount compared to its intrinsic value. In order to find such a gem, an investor would have to take the time to learn about the industry, they would have to pour over financial statements to determine the profitability and forecast the future prospects of the company.

Finally, they would have to apply the valuation technique of their choice in order to arrive at an intrinsic value for the company. Even though this process has become a lot easier compared to several decades ago, it has made identifying such investments before the masses do a lot more challenging.

Information is freely available nowadays and is disseminated by the market and priced into the shares at near real-time. This makes it difficult to find a competitive advantage in the market and has forced investors and analysts to rely on superior valuation models and more in-depth sources of information.

So where does it leave your average investor? While technology has opened the markets up to the part-time trader, it has also levelled the playing field substantially; you might not uncover a winner before everyone else does, but it is at least possible to ride the wave with the masses and ensure that you don’t miss out.

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