Time for a Robot Fund!

https://www.businessinsider.nl/companies-investors-focus-on-robots-artificial-intelligence-2017-4/

The robots are coming and it’s only a matter of time before we all lose our jobs. Sounds horrible. But what can we do about it?

Don’t worry: in this week’s column, I won’t bother you with a long discussion about robots or whether their proliferation will be disastrous for all the workers who will be laid off. That is almost a daily topic of discussion and could be summed up simply with: no one really knows for sure. The optimists say new jobs will be created, ones that we are not yet even aware will be necessary, while the pessimists assert that robots are already competing with physicians, chauffeurs, lawyers and restaurant staff and that this will cause social problems. These ideas are entrenched and are not producing a lot of fresh insight. If I had to pick a side, I would probably be with the moderate pessimists, but I’m more than happy to be convinced otherwise. Preferably with facts (what new jobs would there be?), rather than references to the past and a comment that all horse-drawn wagon coachmen eventually found jobs in the automotive industry. Past performance is no guarantee of future results…

What if…?

But leaving that aside… For the sake of convenience, I am going to assume in this column that robots are indeed taking over and that that will gradually erode the job market. How do you keep all profits and income from going only to a small, select group of robot makers, while the rest of us lose our jobs and are doomed to beg for our livelihood? Recently, Bill Gates suggested that robots should be taxed in order to make their advancement (and the resulting loss of jobs) affordable for society. This idea didn’t meet with much support. Not only would it place an undesirable constraint on technological development, but people couldn’t see how robots were really so different from computers. Then, others argued that instead of imposing a tax, governments should actually invest in the robot manufacturers. The idea being that governments would be part owner of the robot makers and get a piece of the pie and share of the profits. The profits could then be put towards training or financial support of the unemployed. Establish an investment fund and acquire a stake in the new class of robots set to conquer the world!

That’s what went through my head when I came across the graph above. It comes from Bank of America and shows how much money has gone into robotics funds over the last three years. This graph leaves little room for argument: investing in robotics is hot. Time for the Robot Fund!

As nice as this idea sounds, in practice, I mostly see problems:

  • Where the Norwegian oil fund (NBIM), for instance, aims to generate a solid long-term risk/return ratio, a robotics fund would attempt to share in the profits of ‘The Ultimate Robot Maker’, or makers, if you will. Something akin to a Skynet from ‘The Terminator’, but not in order to make robots to wipe out the human race, but ones whose stock would make an extremely profitable investment. That means the fund would consist entirely of stocks, so it would also be fully exposed to the volatility of the stock market. While it is true that stocks by their very nature are fairly volatile, when you invest in only one sector, you can bet there will be considerable fluctuation. Take the Nasdaq, for instance, which lost around 75% of its value between 2000 and 2002. I sincerely doubt governments would be willing to accept such losses of public funds. Keep in mind that as indices go, the Nasdaq is still pretty diversified, so it’s hard to compare it to a portfolio aimed at making you owner of The Ultimate Robot Maker. Diversifying would be nearly impossible, and we know how problematic that can be.

  • The most highly specialized companies do not always end up being industry leaders. Let’s say you considered investing in self-driving cars ten years ago. Investing in a search engine like Google would probably not have been the first thing that came to mind. And if you wanted to buy the retailer of the future, you probably would not have placed your bets on an online bookstore like Amazon, either. So should you invest in companies such as Fanuc, Yaskawa and ABB, or are Tesla and Samsung more likely to lead the pack? How easily can you spot a Skynet in advance?

Most robotics companies are largely unknown

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https://roboticsandautomationnews.com/tag/top-10-robotics-companies-in-the-world/

  • The idea that a single dominant company would rake in all robotization profits sounds good, but it is of course an illusion. I’m happy to imagine a future where robots at some point do most of our work, but that certainly doesn’t mean robot makers will be the only companies left. In one hundred years’ time, companies like Unilever and BASF will still be around and just as before, they will be turning profits and trading on the stock exchange. While I can imagine they could eventually do without human labor, as long as managers respond quickly to the phenomenon of mass robotization, the old-school companies need not disappear. In other words, even if robots are the future, that doesn’t mean that the stock market will consist only of stocks in robotics companies. So the question is how far should you go with placing all of your eggs in that one basket of The Ultimate Robot Maker, when diversifying is much less risky. In my opinion, if you placed all your bets on the Skynet of the future, you’d be taking an immeasurably large risk.

  • The whole idea of a Robot Fund is to share in the profit and use it to support and train the unemployed. Whereas governments want to see dividends increase each year, that likely conflicts with the company’s own aims. Which brings me back to Amazon: they focus entirely on growth and pay out no dividend whatsoever. So governments would have little choice other than to sell their stocks in such companies, thus reducing their future claims to profits.

  • For the sake of argument, let’s ignore all this and imagine state-run Robot Funds becoming popular. What do you think would happen to the price of the robotics stocks? In the first graph, the peak shows these stocks have already become much more popular, but this is nothing compared to how it would look if governments suddenly started investing huge sums of money in them. Prices would skyrocket, sucking up any market share left for new robot makers. And you would no longer be able to see the forest for the trees. Such a scenario is reminiscent of the late 1990s when the Internet was considered the sector of the future. That was fun for the startups, but all most investors got out of it was a bloody nose. That’s why I am always so fascinated by this graph showing the composition of the US and UK stock markets in 1900. Stocks set to benefit from the advent of the train, were in high demand! But if a government had at that time started a train fund to help all the unemployed coachmen, I seriously doubt it would have benefited financially.

Train stocks, that was the ticket!

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Bron, Dimson, Marsh & Staunton

In short, a nice idea in theory, that unfortunately won’t work in practice.

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