The Era of Disruption

20 years back, we bought and sold stocks through a broker whom we called physically, bought books by going to a bookstore, purchasing essential items and groceries meant once a month visit to the local kirana wala and went out for Lunch to the nearest hotel even if we despise the taste and lack of variety.

Today, most small brokers have perished, bookstores are closing down owing to lack of footfalls even as more Indians are buying books like never before, small kirana stores are closing in the face of competition by large chains and online grocers and the number of options you can have for lunch has multiplied to the extent that in some parts of town, you can order from a different hotel every day of the month.

Balaji Telefilms shot to fame with its Kyunki Saas Bhi Kabhi Bahu Thi. Limited number of movie channels meant that the same story could be told across languages. Limited prime time meant that connections and network were the key to get the preferred slots. Oncoming of Amazon Prime and Netflix is in a way extinguishing that barrier.

Fifteen years ago when I became a broker, my client list was limited to my ability to network. Today if I were to start anything, the world is my oyster as the saying goes.  

For a very long time, banks in India followed a unique model when it came to paying interest on money deposited in savings accounts. While even today public sector banks under-pay, the small investor has much broader options.

Once upon a time when Mutual Funds were still in their infancy, fund investors had to bear all kinds of expenses ranging from amortising new fund offer expenses to entry loads were paid by investors. 

Today, not only has the overall fee gone lower, but active investors have the ability to choose funds that charge much lower for same funds or even lower for basically buying the Index. It took more than 30 years for the revolution of low fees to become mainstream in the United States, we should get there within 10 if not less.

Portfolio Management companies charge both a fixed fee on the assets they manage and a performance fee (some with very low hurdles). But things are changing even there. At Capitalmind (Disclaimer: I work here) for example, we have a portfolio where the total cost of a portfolio that invests in the top 100 largest companies of India and top 100 companies in the United States with total expense ratio (ours + the underlying funds) comes to just 50 basis points.  

Disruption is even here around the corner. Smallcase for example is a way for a smart advisor to create a portfolio & one that is publicly tracked. With the fee being fixed, the larger the capital invested, lower the fee as a percentage of the portfolio not to speak about there being no performance fees during those good years.

Your margin is my opportunity said Jeff Bezos years ago and it’s coming true across the spectrum. Stocks with crazy valuations are seen as leaders that are unlikely to be disrupted. But every Golaith at one time or the other meets their David and when that happens, its very likely that David will win the battle unless he is bought out first.

As Investors, we need to be nimble footed to recognize the change for recency bias and our own heuristics generally provide false signals on where one should invest and what one should avoid.

Recognizing emergence of a new trend is as important as recognizing the end of an earlier trend. That is easier said than done but is the only way to stay ahead of the herd.