Why You Should Learn From the Many Diverse People Around You
"The measure of a person,” says Mark Cover, “is not only how many people show up at his funeral, but how much variety there is in the group of people who show up.” The more variety, the richer the life.
“I’m not sure where I learned this,” he continues, “but somewhere in my twenties, I realized that I could learn from literally every single person I came into contact with. I think a lot of lives get short changed because many people don’t believe that.”
Related: Timeless Wisdom: The Golden Mean
Mark came from a rural farming community. Growing up, he had no idea what a real estate developer even was. No one would have ever predicted that he would become the CEO for a division of a multi-billion-dollar real estate development firm. He jokes that when he first graduated from college, all he had was a couple polyester suits, a smile, and debt. It is that humble beginning that taught him about the many opportunities available to someone with an open mind and a willingness to learn without preconceived judgments.
Although, at this point in this life, it would be easy for Mark to limit his contacts to business colleagues, investors and neighbors in his affluent neighborhood, he goes out of his way to cultivate relationships with diverse groups of people he wouldn’t typically run into in the normal course of a day. Every Sunday, he and his wife drive 35 minutes to a church that is in a neighborhood very different from their own. Sure, they could go to the church that is only a few minutes away. But, Mark doesn’t believe he can serve or learn as much close to home.
Parenting, Money and a Learner’s Permit
One group of people Mark has had the pleasure of learning from are private wealth holders. Because of his career, Mark has had the opportunity to meet the ultra affluent and financially savvy. And he’s observed what wealth can do to family dynamics. Inheriting great sums of money doesn’t always lead to more freedom. In fact, Mark says many second- or third-generation wealth holders are “frozen in fear.” They are afraid they will mismanage the money and ruin their family’s legacy.
“That’s why,” he says, “I’m a big believer in enabling young people with a sense of wonder, excitement and optimism for their personal opportunity and ability to accomplish things that matter to them.”
He also believes that parents must reflect respect for their children from an early age and that is how he raised his four children (now adults). Mark and his wife had a parenting philosophy in which they openly talked with their children, shared insights and wisdom and “always gave them a little more rope than they expected.” For example, in Texas, you can get a learner’s permit when you are 15. So, Mark says he pushed each one of his children to get their learner’s permit as close to their fifteenth birthday as possible. Lots of other parents were terrified to have their children start driving in the big city, but Mark has always viewed things from the other side. “It’s your life,” he says. “It’s short. Go out and grab it by the horns. As long as it doesn’t hurt yourself or someone else, go for it!”
An Emerging Theme In Thematic Investing
Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments.
Go back to the late 1990s, before the bursting of the Internet/technology bubble. Back then, investors stood an equal chance of selecting E-Toys over Amazon or some no longer in existence networking equipment maker over Cisco.
“History is littered with examples of prospering industries with no indication of which company will come to dominate the industry,” according to Nasdaq. “This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities.”1
The ALPS Disruptive Technologies ETF (DTEC) provides basket exposure to a broad swath of thematic investments. DTEC features exposure to not just one or two emerging technologies, but 10 such themes on an equal-weight basis.
The 10 themes represented in DTEC are as follows: 3D printing, clean energy, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, Internet of Things (IoT), mobile payments and robotics and artificial intelligence (AI).
Generally speaking, fund issuers have been quick to respond to disruptive and transformative technologies, bringing products to market to tap these themes. Prior to DTEC coming to market late last year, there were ETFs devoted exclusively to cloud computing, cybersecurity, robotics and other themes featured in DTEC. However, few use the basket approach to themes employed by DTEC.
February, a rough month for U.S. stocks, highlighted the advantages of DTEC's multi-theme methodology. Seven of the 10 themes found in the fund finished the month lower, but DTEC was able to outperform the S&P 500 on a monthly basis.
Focusing on individual themes can be rewarding over the long-term, but not all investors have the risk tolerance for such a strategy. Consider this: the Indxx Global Robotics & Artificial Intelligence Thematic Index jumped more than 48% in 2017. That type of performance is enough to seduce many investors, but that same benchmark slipped 7.60% in February, generating monthly volatility of 34.10%.2 Said another way, that robotics and AI index's February slide was more than triple the loss experienced by DTEC during the month.
While it probably is not accurate to call the indexes devoted to individual disruptive themes “old,” many use old school weighting methodologies. For example, the two largest components in the ISE Cloud Computing Index are Netflix, Inc. (NFLX) and Amazon.com Inc. (AMZN). Only two members of the S&P 500 have larger market values than Amazon while Netflix currently has a larger market cap than Wal-Mart (WMT) and McDonald's (MCD).
Holdings subject ot change as of 12/31/17
For its part, DTEC not only equally weights its 10 disruptive themes, but its 100 components as well, potentially reducing single stock risk in the process. As the chart below confirms, equally weighting stocks is rewarding across sectors and market capitalization segments.
Past performance does not guarantee future results
Annualized returns for the past 10 years show seven of the 11 S&P 500 sectors, when equally weighted, outperform cap-weighted equivalents, according to S&P. Three of those seven sectors – financial services, healthcare and technology – are prominent parts of DTEC's roster.