What caught my eye this week.
There hasn’t been much to cheer about recently, so I especially enjoyed Vanguard’s new paper How America Innovates (research, PDF).
In it the authors track how scientific and technical innovation are diffused through different fields, which causes a chain reaction of further innovation.
And they argue we’re at an inflection point where several key discoveries are finally making their way into commercial applications.
This table simplifies how ‘innovation shocks’ in one field are causing ripples of progress in others, to yield new areas of research and application:
Source: Vanguard
The authors conclude it’s all good for productivity – and for the American economy generally:
We now expect U.S. GDP per capita growth to average 2.0%–2.5% from 2020 to 2030, a pace we haven’t seen in decades and a positive development for wage growth, asset returns, and economic opportunity (Davis et al., 2020).
This productivity boom has been bubbling under the surface following the global financial crisis, supported by research in less visible upstream disciplines that needed time to permeate downstream and find their commercial utility.
And while the focus is on the US, there’s reason to be hopeful elsewhere too.
An additional thread in the paper is how distant researchers are more effectively collaborating, and how innovation is thus more geographically diversified.
Globalization and the Internet get the credit, and though the UK has been going backwards in fostering international collaboration since 2016, Britain remains an innovation powerhouse.
What’s more, productivity-boosting commercial applications will become available globally, regardless of nation state blundering.
All together now
Given the culture wars blighting all social media feeds, I was also pleased to see the empirical data showing more diverse teams (by gender and ethnicity) have coincided with greater innovation.
Getting more and different kinds of people doing great work isn’t just about virtue signalling. It means more and varied capable brains coming up with the ideas that we all benefit from.
I’m very interested in innovation, not least as an active investor. But with a shrinking and ageing population, productivity gains are something everyone should care about. Further improvements in wealth and our standard of living – not to mention staving off climate disaster – depend on it.
Summer is winding down. Enjoy a great – but not too productive – weekend.
From Monevator
SPIVA: the evidence against active funds – Monevator
The hosepipe ban approach to big savings – Monevator
From the archive-ator: a mortgage is money rented from a bank – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1
£1 buys $1.15. Are we headed for parity with the US Dollar? – This Is Money
UK government wins pension fund legal challenge over change to RPI [Search result] – FT
Leasehold scandal: thousands of homeowners to receive ground rent refunds – Which
‘Festival of Brexit‘ attracts 238,000 visitors, versus 66 million projected – Guardian
Manager of Blue Whale fund says “most active fund managers should quit” [Search result] – FT
The Great Resignation forced US companies to order a record number of robots – Fortune
The return outlook for bond and multi-asset investors has improved – Vanguard
Energy crisis mini-special
Switching to green fuel as urgent as Covid jab, says energy boss – BBC
Eye-watering energy costs – FirevLondon
UK households are worse hit by energy crisis in Europe, says IMF – Guardian
Lights out for Britain’s industrial heartlands – This Is Money
Britain in a mess, as ruinous energy bills meet austerity – Guardian
Will Joe Biden’s gamble on Big Oil pay off in leveling gas prices? – Guardian
Best appliances to save cash when cooking – Guardian
Products and services
New lender Perenna has been granted a licence to launch a 50-year mortgage – Which
Investec launches one-year fixed rate savings deal paying 3.3% – This Is Money
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
What is wrong with Inverse ETFs? – Factor Research
Cheaper alternatives to Sky TV and Virgin Media – Be Clever With Your Cash
Open an account with InvestEngine via our affiliate link and get £25 when you invest at least £100 (new customers only, T&Cs apply) – InvestEngine
Homes for sale worthy of Grand Designs, in pictures – Guardian
Comment and opinion
All the personal finance books are wrong – The Atlantic
Workers also face sequence-of-returns risk – Morningstar
Is it ever a good idea to stop paying into your UK workplace pension pot? – Guardian
Inflation, debt costs and Truss’s pledges risk £60bn UK budget hole [Search result] – FT
The tiniest violin for buy-to-let YouTubers – The FIRE Shrink
Five uncomfortable facts about investing – Banker on FIRE
Don’t fear the reaper – Sex Health Money Death
Time to take your shot to get rich – The Motley Fool
Why we collect – Humble Dollar
Crypt o’ crypto
How did crypto go mainstream? [Podcast] – Which
More than half of all Bitcoin trades are fake – Forbes
Naughty corner: Active antics
Most of us are secret momentum investors – Behavioural Investment
Risk versus uncertainty and investor behaviour – The Evidence-Based Investor
Higher inflation is creating an opportunity in emerging markets [PDF] – Vanguard
The Case for Long-Term Value Investing: a review – Enterprising Investor
Kindle book bargains
I Will Teach You To Be Rich by Ramit Sethi – £0.99 on Kindle
How To Own The World by Andrew Craig – £0.99 on Kindle
Quit Like A Millionaire: No Gimmicks, Luck, or Trust Fund Required by Kristy Shen – £0.99 on Kindle
Way Of The Wolf by Jordan Belfort – £0.99 on Kindle
Environmental factors
One in five new cars will have zero emissions by 2023 – This Is Money
How melting glaciers fueled Pakistan’s fatal floods – Vox
Museum collections show bees stressed by climate change – Imperial College
The tide turns towards renewable aquaculture gear – Hakai Magazine
Fearful cyclists in the UK are giving up riding their bikes – Guardian
Financial markets are responding to climate risk [Research] – Alpha Architect
Americans keep moving to where the water isn’t – Vox
Off our beat
The most important forces shaping the world – Morgan Housel
Quiet quitting: the workplace trend taking over TikTok – BBC
Stable diffusion is a really big deal – Simon Willison
The trait that ‘super-friends’ have in common – The Atlantic
One data point can beat Big Data – Behavioral Scientist [h/t Abnormal Returns]
How America innovates [PDF, research] – Vanguard
Amazon’s Lord of the Rings epic divides Tolkien fans – Guardian
And finally…
“Mild success can be explainable by skills and labor. Wild success is attributable to variance..”
– Nassim Nicholas Taleb, Fooled by Randomness
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Any idea when we’ll see ‘How the EU innovates’ ?
Me neither.
Globalization and the Internet get the credit, and though the UK has been going backwards in fostering international collaboration since 2016, Britain remains an innovation powerhouse.
And that’s despite yesterday’s slagging off of Brexit. What’s it to be ?
Remember reading some years ago a Swiss Financial consultant,s report on a CEO,s course in Switzerland involving German and American teams
“Both teams did well but you Germans will in the end never beat the Americans.
Why? Well look at the constituents of the American team-Indian Americans,Chinese Americans,Japanese Americans etc etc
Look at your team -only Germans!”
Ah that pesky innovative -don’t tell us what to think!-Anglosphere!
xxd09
@BBlimp — My reference in the article about the UK leaving the bloc and its impact on science is a statement of fact, supported by data from The Royal Society. Follow the link to learn more, if you’re even vaguely interested.
Anyway I propose we could all take a break from Brexit debates on this post. So let’s take this exchange as representing both sides. 🙂
I will likely delete EU-related comments from either side from here. Cheers all!
(Edit: Deleted an antagonistic line in the spirit of us all having a nice weekend.)
I came too late to serious investing to grab the historic yields on government debt: A victim of QE. For my bond allocations, I went to strategic bond funds which did okay in what was, from a yield perspective, a trying environment. Now however, as US yields went over 3%, I have been steadily swapping out of the strategic bond funds into government debt funds. These are mostly US Government hedged to Sterling. I have doubts about the UK’s credit standing long term (we seem to have gone populist in terms of style of government which rarely ends well financially or otherwise) but I may do some gilts as these creep to 3%.
Great blog as always
Your point re diversity is well made-in ideas ,politics and investing etc
I think no one cannot but have been impressed recently by the great range of diverse Tory candidates for Prime Minister
Her Majesty’s Honourable Opposition does seem to struggle in this regard especially with the Jewish and female portions of the electorate
Ms Truss may soon be the third female British Tory prime minister but not one female yet from the Labour benches
A conundrum?
xxd09
I read the Blue Whale “most active fund managers should quit” click-bait article, as I’ve been reading/watching a bit of Stephen Yiu stuff because I like keeping tabs on high-conviction funds with sub-30 holdings.
The article is reasonable enough but then the author (not Stephen) quotes research from AJ Bell stating that most active funds have underperformed passives OVER THE LAST SIX MONTHS!
In the 27 years that I have been an investor I have seen literally zero shift towards any sort of sensible mainstream coverage of the stock market. What does six month “performance” have to do with anything?
It’s like asking random strangers in the street how much they think your house is worth, and if Bob says £300,000 today whereas Jane said £310,000 last week, you get depressed because you’ve “underperformed” the market.
The total lack of any sort of sensible mainstream stock market commentary just occasionally does my head in.
Where America really has an edge, is turning these innovations into marketable products for global sale. The American domestic market has the depth and size to test market and harness economies of scale . When a product is successful in the American market it is ready for the global market. Smaller countries do have global successful companies but its much easier for larger markets to go global.
Americans in general seem to be more industrious, energetic and positive minded than we are. Some cultural thing I guess, or the advantage of a coffee culture over tea ?
Saw a meme recently: Quiet Quitting or.. Inflation Adjusted Effort?
@mr o
The US was founded on people with gumption, confidence, get up and go (migrants) – I wonder if on average their DNA is slightly skewed
Perhaps a bit like London exams results v rest
B
If we’re going to look at the UK in terms of innovation there are probably many reasons why innovation doesn’t convert into gdp as successfully as it does in the US. Scale, class/education, poor investment opportunities..
Counter anecdote: My father sold his plastics business to the Americans, he had developed a patented process for manufacturing sintered porous plastics. They managed to screw it up ( lack of know how) and my brother restarted it back here in competition [as they hadn’t done the legal stuff properly].
Having worked for US tech companies most of my working life I’ve seen they can be world beating at screwing things up, as well as being great businesses. It’s probably their ability to cut losses quickly that makes a difference.
The need to switch to the Green Fuel right now huh?. That’s a big joke. The need for green fuel is to make other people more money. The Green Reset is nothing but a cash grab. A push towards a more Socialist government.
Interesting to read that in the same breath California is phasing out diesel/petrol cars by 2035 with a request for electric vehicle car owners not to charge their cars at the present time due to a shortage of electricity
You couldn’t make it up!
What times!
xxd09
@xxdo9 California isn’t asking EV owners to stop charging their cars, rather they are asking them not to do it at peak times. You have to read past the headlines.
@The Investor – just to say thanks for putting together this interesting set of links, as always, makes for fantastic reading on a Sunday morning. It is a shame that the trolls are out in full force in the comments (and they are just the posts which you didn’t delete, I assume there are far more I didn’t have the misfortune of reading!). Not sure what is best to do about the unhelpful commenters, they leave less space for useful discussion. Thanks again from a long time reader.
re: Blue Whale. IRONY ALERT – if you measure them against any decent index (not the rubbish one they use) they are underperforming & should all retire. I really wanted to like them, but it just feels like a Hargreaves family marketing exercise (literally one of his sons does the PR, I think).
I’d still probably go with Fundsmith of the Global funds – they’ve played a good game for a long time – we’re now seeing that those who underperformed in 2020-21 were like those who didn’t chase the excesses in 1998-99.
However I imagine that Julian Robins who seems to be the #1 brains may be tired or want to relax & enjoy his money, so it wouldn’t surprise me if they aren’t quite as strong going forward.
@JM — Thanks, it’s always appreciated. Just to clarify, I really rarely delete comments. There is one regular former commenter (/troll) who is now regrettably on auto-delete pretty much but him apart there are weeks I don’t delete anyone.
I agree a couple of the comments on this thread are content-light/borderline off base, and when I’m in a trigger-happy mood they might have gone (I’m biased against short comments that are just argumentative) but I won’t delete someone *only* for disagreeing, as a rule.
All that said I did delete a few EU-related comments on this thread, representing both sides. Mostly because we went through all that last week, and so I said I would very early in the thread above.
Anyway all just a public service announcement for readers wondering about commenting. I do delete, and I believe it helps with the general tone around here. But I don’t delete as much as you might think, and readers should feel not concerned about writing well-crafted constructive disagreement. 🙂 (Except when special circs apply, like the EU/B-word-ban on this thread).
@TI – I think (hope) you meant that people should NOT feel concerned?
P.S. I’m a different Dave S than the one who commented on your mid-week article. I had rather assumed that user names had to be unique. Maybe serves me right for having such an unimaginative user name (with no offence meant to the other Dave S).
I wouldn’t read too much into the ‘power of diversity’ point Vanguard is trying to make. The methodology doesn’t stand up to scrutiny (as has been the case before on gender diversity per link below).
The correct aim must be to have the most competent person in a role irrespective of their group identity. It’s very dangerous to allow group identity to reign supreme. The individual is the ultimate minority. Yes to equality of opportunity; no to equality of outcome.
As for what Europe has invented, all of the founding principles of the US.
https://knowledge.wharton.upenn.edu/article/will-gender-diversity-boards-really-boost-company-performance/
If diversity does result in productivity gains (I wouldn’t know one way or the other) surely it balances out against all the tick box positive discrimination where roles are filled due to characteristics as opposed to capability?
@platformer — I’m sure more diverse teams will more often than not do better because (adjusting for educational access) I think intelligence and capability is broadly distributed equally. There may well be slight tails in this or that ethnic group or even between genders, but the evidence says even if they exist they’re hugely washed by the noise of other factors. And much of the very best research in science is done by extremely intelligent people who are several standard deviations above everyone else anyway.
Set against that, there is realms of research showing we all have biases to side with people who think/look/believe like us, recruit similar people etc.
Hence a ‘normal’ person will tend to have anti-diversity biases, which by extension could see them pass over a superior candidate (probably unwittingly).
So while I share some of the well-worn concerns about positive discrimination, I think going into almost any enterprise thinking ‘diversity will strengthen us’ is a very useful and positive counterweight to those biases. (This is before we even get into more practical applications, such as have female viewpoints involved in the development of products designed to be used by everyone. (See Invisible Women for pretty stand-up evidence of the problems of not doing so).
@Dave S — Eek. Quite right!
@Bobby Gas currently costs nine times as much as renewables, that is why we need to switch to green energy. The people with the money are the fossil fuel companies, execs and shareholders.
Absolutely take your point on closing down discussion on certain situations
Your blog after all but a bit sad as adversarial discussion as in our parliament and law courts etc seem to be the best way our culture has evolved to arrive at a proper resolution of problems
Albeit done in a polite and mannerly form!
Mr Monevator alias the Speaker(of the Commons)!
This way of problem solving does however upset a lot of people especially the fair sex(with notable exceptions) in these fragile and sensitive times
Perhaps there is a better solution out there but rather like looking for an alternative to bonds to balance equities I for one am still looking!
In the febrile times in which we currently live perhaps more discussion rather than less would be better allied of course with vigorous moderation to keep the discussion on point
That way we might all arrive together on those sunny uplands we all dream about
I do blame the advent of passive investing which once set up is best left alone but has the downside of allowing investors much more time to discuss other more interesting matters-like politics?
xxd09
@TI – recruitment based on merit is by definition non-discriminatory for any factor but merit. To the extent recruitment is made based on a factor other than merit, this should be addressed. Anything which makes recruitment more meritocratic is to be celebrated.
But we should a) be sure exactly which factor we think is being selected for other than merit and b) be sure exactly what intervention allows for that factor to be removed.
The claim seems be that some forms of group identity (e.g. gender, race) are selected against for reasons other than merit. This fails on both the a) and b) tests above. The tests ‘showing’ unconscious bias do not do so reliably and we have no valid way of changing these biases even if they did exist (see study below).
There are 100s of group identities applicable to any individual. It is not helpful to split people into group identities across which you are either oppressed or oppressor, or to seek to rank relative oppression across different groups. Today you may be in the group that is oppressed. Tomorrow you may be the oppressor. Either way, you are treated for reasons other than the content of your character.
This cannot be decided by the mob, particularly a mob claiming to be virtuous. Group identity is dangerous. The individual is supreme.
https://pubmed.ncbi.nlm.nih.gov/31192631/
@jim: I’m curious to know – do you really imagine that where management teams, boards (etc) are mostly composed of white men it’s not because their “roles [were] filled due to characteristics as opposed to capability”? As distinct from, say, a kind of positive discrimination that’s become so embedded in the culture it doesn’t even need tick boxes?
@TI #22
“…..there is realms of research…..” doesn’t read quite right to me. Did you mean “reams” or am I just having a picky Monday? 🙂
If anyone has any doubt about energy shifting to greener sources, a friend of mine in Canberra ACT sent me an email the other day and said this.( the contrast was to our own energy bill predicament)…
” In contrast, both our water and power bills are going down in the ACT. Power because we are now 100% renewable and it’s the lowest cost power on the grid, and water because of reasonable long term planning by the local water authority”
Perhaps the right wing press will keep more quiet about this now rather than perpetuating stories about how renewables are (take your pick) Polluting, expensive, useless or using slave labour conditions. And bring on the end of the reliance on fossil fuels. The late David MacKay ( https://www.withouthotair.com/ ) has been proved right too often in his writings.
JimJim
The diversity issue is interesting, but it is not diversity in group identity that matters, but diversity in thinking.
I’d recommend reading Matthew Syed for a hot take on the subject
https://amzn.eu/d/89iNhS7
It appears that so much electricity is produced by renewables in the U.K. that the formula for pricing electricity should change.
But how much support can there possibly be for subsidising firevLondon energy bill ? Hard to imagine renters on £40k a year happy to subsidise high earners with two homes ?
I’d be quite happy for him to switch one of the homes off and live in the other, sell one, or pay his bill out of his own pocket…