Markets, Exchanges and Volatility II

Invest, Despite the Present Shock

In his 2013 book Present Shock, American writer Douglas Rushkoff dissects what he calls our new relationship with time: the "present shock," a temporal state of confusion arising from the fact that everything happens simultaneously.

Present shock is an interesting concept when looked at in terms of investment. Isn't investing primarily a gesture of tying up funds in order for them grow over time? But in a world where our relationship with time is changing and whose "present shock" is a key element, the concept of investment is also changing.

As any entrepreneur will tell you, growing a business is a venture that takes time. In the current era, when the present causes us to suffer a permanent shock, it is increasingly common to aspire to make money on transactions and not on investments.

In the markets, one of the most visible symbols of this obsession is the rapid growth of derivatives. The Bank for International Settlements estimates that this type of product has increased by almost 1,000% between 1998 and 2007, which led directly to the financial crisis of 2008. Even the concept of a "derivative" – to buy today the future value of a present value – is a consequence of present shock: by assigning a current price to future values, we risk forgetting that the creation of value takes time.

At the Markets, Exchanges and Volatility seminar I hosted on September 7 at Espace Desjardins, I tried to illustrate this trend using various examples.

In this regard, the case of Nintendo stock is quite striking: following the launch of the mobile game Pokemon Go on July 6, 2016 the stock gained 120% in 10 days. This increase caused the financial press to buzz about the "great Nintendo rally" and to suggest a potential "halo effect caused by this game" on the rest of the Japanese company's activities. Then, after a trivial statement which repeated public information about the relationship between Nintendo, The Pokémon Company (owner of the brand) and Niantic (the game publisher), the stock dropped by 35%... and the media is lashed out at the company!

If we set aside "daily volatility" to focus on the bigger picture, Nintendo's shares rose 20% this year. The company has earned tens of millions of dollars thanks to this game, and its new consoles are quite popular with their customers.

When we bring everything to the present, sometimes it seems that markets are affected by high volatility. One must look at the situation as a whole to realize that being an investor does not just come down to making a series of transactions.