Are you into fashion? You’ve probably noticed that retailing icons like Banana Republic and The Gap are getting crushed by the fast fashion guys like Zara and H&M. I mean, who wants something that’s a week old anyhow?
Hmm, tell that to the guys on Wall Street. The same old asset classes, the same old sectors. I was just reading an analyst report on the sectors that are hot and cold. Guess what? Who’s interested in energy as a sector anyway? Or consumer goods? Been there done that!
Give me something new and intriguing to feast on. Why not some high-frequency fashion on Wall Street too? Otherwise it’s just too boring. Wall Street is serving up work duds when the entire world is going to fast fashion! I guess that’s why hapless investors just give up on active investing and go to ETFs. If it’s gonna be boring, do it properly.
There seems to be so much misplaced gravitas and naïve expectation surrounding the traditional sectors like consumer goods, clothing, technology and healthcare. OK so you’ve got subsectors to give you more choice, but by modern standards they’re old, boring, few and actually no choice at all. No wonder no-one ever makes much money. There’s only so much you can do with sector rotation, or changing allocations with the business cycle. How about some pizzazz, color, change, movement?!
It seems to me that we could spice up sectors by creating your own. Fast fashion uses synthetic materials right? So Wall Street can have synthetic sectors too! With modern fashion, synthetic materials are often vastly superior to natural materials So why shouldn’t our synthetic sectors be vastly better to what Wall Street has been serving up to us for yonks?
How about chocolate-flavored cotton; you remember, Milo Minderbinder in Catch 22? What about the sector of things that are flat and long like steel pipe, penne and pickaxes (sector: “flatties”)? Or things that explode, like soda, dynamite, fireworks and mortars (boomeroos)?
Did you know that written Chinese uses a system where every word has a classifier in front (usually but not always) of it (a “radical”) that describes what kind of word it is? So you can have radicals for knife, ice, table, cliff and so on that are put with any word (actually a character) that has a resemblance to the classifier. Why not use Chinese radicals as a basis for sector allocation? Then we and the Chinese for once could be on the same page.
Actually you could create your own system of Western radicals say based on Latin roots, and then classify products based on them. Then you would have a Latin-based sector allocation. It’s about time we started teaching the Classics again. Let’s use a bit of old-fashioned imagination here folks!
Would that be any less sensible than using the current sector labels? Why should current labels be the basis for sectors if we can create our own? Let investors decide their subsectors for themselves. Self-determination is the watchword for fast fashion, not grand-dame styles proclaimed from on high.
There’s no logical reason why any sector should be defined in a traditional way if you can define it in your own way, as long as you can group some items together which have some resemblance in some shape of form. You could figure out the level of resemblance by running some regressions over a number of years to find the correlations between the synthetic class members. That shouldn’t be difficult for the quants.
Come to think of it, once quantum computers are released to the unsuspecting public, there’s no reason why you shouldn’t run as many of these programs as you like on as many synthetic classes as you like instantaneously, just as they will be used to revolutionize high-speed trading in the near future.
So that would give us fast fashion in the area of sector allocation. Maybe different synthetic sectors every week, never see the same one again. Now that’s intriguing, definitely not work duds. Maybe I would go for that one rather than the old stuff Wall Street keeps on serving up now.
What about just-in-time sectors which you could have disappear once they are used? Just like Snapchat with disappearing photos, so you would immediately generate massive demand from Millennials to trade stocks again; they get Snapchat even if the Street doesn’t. You get the idea.
They would be one-use sectors, kind of like single-use shavers or like the old vinyl records that in the beginning of the recording industry you could only play once. Snapchat-ized dynamic synthetic sectors would be a great way to keep your lead in the market, keep everyone guessing and therefore keep your returns astronomically high. Maybe it would bring back active investing again!
There would be nothing to stop you offering sector specials, maybe open for a day or so before they’re closed. Maybe you could bring them back again a few months later, but with a different twist. With a lot of computing power you’d be able to slice and dice the synthetic sectors into different types of specials. Just because the sectors keep on changing doesn’t mean you can’t keep tracking them behind the scenes, no matter how they are defined and classified. That’s what computers are for.
Maybe some people might feel disoriented by ever-changing sectors. But folks, that’s fast fashion. Better get used to it. The Millenials are already there, it’s just the gerontocrats on Wall Street and in global investing locations generally that haven’t caught up yet.
That’s what investment and trading leadership is going to be all about. The constantly-changing sectors will be like new clothing fashions. The way to get back the cool factor and customer interest might well be to redefine equity trading as a fashion business. After all, defining it as a serious investment activity doesn’t work any more, right?
Synthetic sectors might well be regarded as a whacko idea. But it seems to me that Wall Street needs a few more of them right now. Active investing is pretty much dead, the hedge funds are in disrepute and ETFs are the only game in town, well kind of. But they’re commodities right now, with no cool factor and no chance of ever making real money, like people did in the old days.
Time for Wall Street to dive into fast fashion and reclaim its long-lost cool,methinks.
Can investing be exciting for normal people?