Mansharamani looks at the big picture of an uncertain future
PHILADELPHIA — Are you concerned about the future and the uncertainties that lie ahead? As you work to unravel the mysteries of tomorrow, take a step back and focus on connecting the dots. That’s a key message that presenter Vikram Mansharamani had for attendees of the Emerson Group Retail Industry Day.
“I think by connecting dots and taking a step back you are basically being a generalist. You are going to help avoid this problem of specialization by taking a step back and looking broadly,” Mansharamani told attendees during his presentation titled, “Finding Patterns in the Pixels: Connecting the Dots to Use Uncertainty to Your Advantage.”
Mansharamani, an author, global equity investor and lecturer at Yale University, suggested using “multiple lenses” to see broadly and form connections between existing data. In aggregate, these lenses can prove useful in identifying bubbles before they burst, said Mansharamani, who shared with attendees how he takes this approach when examining financial global markets.
The five-lens approach, as described by Mansharamani, includes:
Reflexive dynamics: If you see higher prices resulting in more demand resulting in higher prices then you may, in fact, have a bubble dynamic on hand.
Over-investment: Signs of over-investment and misallocated capital. Examples include the mega mall in South China that is virtually empty and a modern “ghost town” in China built for 1.5 million residents yet is home to less than 20,000 people.
Over-confidence. When people are setting world records in prices for items like art, for example, that could be an indicator. When business and economic leaders take their “foot off the gas pedal in their personal life, it’s probably because they see clouds on the horizon in their professional life,” Mansharamani said, who suggested keeping an eye on Sotheby’s Stock Prices, as it can be useful as a bubble indicator.
Government distortions/moral hazard. When governments get involved there tends to be different dynamics. “I’ll give you a good example. … In China, GDP is the target. So, what you end up having is people doing things to generate GDP independent of economic viability,” Mansharamani said. “… So, I think there’s government distortions, and that’s my fourth lens.”
Herd behavior: Magazine covers can be great indicators of what is popular sentiment.
“There is a way to look broadly, illustrating this with the bubble dynamic to say that being a generalist is better in navigating uncertainty,” said Mansharamani. “Why? Because if you are, in fact, specialized and you are, in fact, over-confident then having a generalist approach will naturally mitigate your overconfidence. You will look broadly and find insight in the most random of places.”
Mansharamani also suggested that companies adopt a “structural devil’s advocate.” In some of his consulting work, Mansharamani encourages people to always have one person who is the “no man.”
“If you have one person who is structurally supposed to say ‘no’ to everything, well that’s pretty compelling,” Mansharamani said. “That task will force you to rethink what you’re doing, when and why.”