Thanks for another interesting and thoughtful post.
A few observations.
Does the lack of research of smaller public limited companies mean there are hidden investment opportunities because there is far from a perfect, informed market? Or does AI mean that people have already exploited this?
I wonder to what extent the sell off of UK equities by insurers etc has led to the long term under performance of the FTSE indices?
Personally I'd be interested in investing directly in new or existing businesses, but buying shares in the secondary market has always struck me as a very indirect and inefficient way of doing so. Surely it must be possible to find or set up lenders who invest directly in companies, such as ones specialising in a particular sector or start-ups, and for retail investors to be able to invest in these, with our capital being invested on our behalf by the fund managers? I think this is one of your ideas.
On the lack of research, I think yes, in theory it should create hidden opportunities. If fewer analysts cover small and mid-cap companies, the market should be less efficient, and a diligent investor ought to have more chance of spotting mispriced firms. The awkward bit is liquidity and access. It is one thing to identify a good under-researched company; it is another to build a position, exit cleanly, and not get stuck in a tiny stock no one else cares about. AI may help people process information faster, but I doubt it fully solves that. If there is no analyst coverage, no institutional attention, and poor liquidity, AI cannot magically create a proper market.
On insurers and pension funds selling UK equities, I think that must have been part of the long-term weakness. It is probably not the whole story, because the FTSE also has sector problems: fewer big tech winners, more old economy firms, weaker growth expectations, etc. But if large domestic institutions steadily sell UK equities for years, that has to affect valuations at the margin.
I agree with your last point. Buying shares in the secondary market is useful, but it is indirect. The company normally does not receive your money unless it is issuing new shares. That is why I think the more interesting problem is direct productive finance: funds that lend to or invest in real companies, especially SMEs, mid-market firms, infrastructure suppliers and scale-ups.
That is basically what I was trying to get at with the securitisation and National Growth Credit Auction ideas. Rather than telling ordinary savers to buy British shares out of patriotism, create vehicles where professional managers can put capital directly into productive firms, with transparency, proper risk-sharing, etc. The goal should be to make productive investment easily investable
Thanks for another interesting and thoughtful post.
A few observations.
Does the lack of research of smaller public limited companies mean there are hidden investment opportunities because there is far from a perfect, informed market? Or does AI mean that people have already exploited this?
I wonder to what extent the sell off of UK equities by insurers etc has led to the long term under performance of the FTSE indices?
Personally I'd be interested in investing directly in new or existing businesses, but buying shares in the secondary market has always struck me as a very indirect and inefficient way of doing so. Surely it must be possible to find or set up lenders who invest directly in companies, such as ones specialising in a particular sector or start-ups, and for retail investors to be able to invest in these, with our capital being invested on our behalf by the fund managers? I think this is one of your ideas.
Thanks, really interesting points.
On the lack of research, I think yes, in theory it should create hidden opportunities. If fewer analysts cover small and mid-cap companies, the market should be less efficient, and a diligent investor ought to have more chance of spotting mispriced firms. The awkward bit is liquidity and access. It is one thing to identify a good under-researched company; it is another to build a position, exit cleanly, and not get stuck in a tiny stock no one else cares about. AI may help people process information faster, but I doubt it fully solves that. If there is no analyst coverage, no institutional attention, and poor liquidity, AI cannot magically create a proper market.
On insurers and pension funds selling UK equities, I think that must have been part of the long-term weakness. It is probably not the whole story, because the FTSE also has sector problems: fewer big tech winners, more old economy firms, weaker growth expectations, etc. But if large domestic institutions steadily sell UK equities for years, that has to affect valuations at the margin.
I agree with your last point. Buying shares in the secondary market is useful, but it is indirect. The company normally does not receive your money unless it is issuing new shares. That is why I think the more interesting problem is direct productive finance: funds that lend to or invest in real companies, especially SMEs, mid-market firms, infrastructure suppliers and scale-ups.
That is basically what I was trying to get at with the securitisation and National Growth Credit Auction ideas. Rather than telling ordinary savers to buy British shares out of patriotism, create vehicles where professional managers can put capital directly into productive firms, with transparency, proper risk-sharing, etc. The goal should be to make productive investment easily investable