By Justin Carbonneau (@jjcarbonneau) —
NASA recently released images from the James Webb Telescope, the most powerful telescope ever. With gold plated mirrors and at about half the size of a 757 aircraft, the telescope is now providing researchers with some of the deepest, most detailed images of the universe ever observed. Through the use of infrared technology, the telescope has produced some incredible early imagery dating back eons – the picture above is the galaxy cluster SMACS 0723 as it appeared billions of years ago. There are thousands of galaxies in the image, and what is amazing is that this part of the universe covers a patch of space comparable to holding a grain of sand in your finger tips and looking out on the horizon.
The James Webb Telescope is a game-changing astronomical research tool, but this is an investing blog so I won’t spend the whole article talking about astronomy (although I wish I could), but instead I’ve tried to weave together what investors may be able to learn from the James Webb Telescope and its incredible new footage of the universe.
Just Because You Can’t See It, It Doesn’t Mean It Doesn’t Exist
The galaxies captured by the telescope have almost always been there, but we are seeing them with more clarity for the first time because of improved technology and research and development.
When Ben Graham first outlined his value investing philosophy, it wasn’t able to be proven statistically or mathematically that buying cheap stocks worked in outperforming the market, but in the late 1970s and 80s, market data, computing power and curious academics started to find the drivers of stock returns, including the size and value premium along with momentum and a few others. These factors were present in markets, but it took research, technological developments and gumption to prove they existed. Similarly, in the market today, intangible assets (i.e., brand name, patents, R&D and even corporate culture) and innovation, are playing a much more important role in stock returns than decades ago. These intangibles have been present for some time, but it’s really the past few years where research has uncovered their importance. A previous and upcoming podcast guest, Kai Wu, of SparkLine Capital has done research on how intangibles and innovation can generate alpha.
Good Luck Picking Winners
Galaxies have lifespans, and while it may occur over millions or billions of years, galaxies die, some survive and some even might merge. Space scientists with PhDs may be able to look at the image and data and tell you with some degree of certainty which galaxies are young and growing and which are old and dying, but the vast majority of people wouldn’t be able pick out those galaxies likely to survive the longest and flourish the most. I sure couldn’t!
Companies also have lifespans. The average age of the companies in the S&P continues to fall, from over 65 years in the 1950s to under 20 years today according to research from Credit Suisse. According to consulting firm McKinsey, by 2027, 75% of the companies currently in the S&P 500 will have merged, been bought out or gone out of business. The overall point is that investors should remember to diversify and not become too overly confident in their ability to pick the best stocks, funds or strategies. You don’t know which will be the brightest in the future, so it is best to buy a diverse group with the understanding there will be winners and losers along the way.
When in Doubt, Zoom Out
A very good friend sent me the images from the James Webb when they were first released, and he said “just like with the stock market, when in doubt, zoom out” and there is importance in this.
As investors, we are consistently being hit with news and headlines related to economic activity, earnings, company announcements, geopolitical developments and hundreds of other pieces of information that influence our decisions and seem important, or impactful, at the very moment. The tendency to overweight recent events is a common bias we all have. But in investing, taking a long-term view, knowing that stocks go up over most 5–10-year periods, understanding the benefits of diversification and asset allocation, investing in a way that is suitable and appropriate given your goals and risk tolerance and being able to stay invested through thick and thin are far more important than any news headline you’ll see. So, zooming out in investing and realizing what is and isn’t important is something we can all do more.
Human Progress and Ingenuity
The development of the James Webb telescope was a massive undertaking – 30 years in the making and at the price tag of $10 billion according to this article – but the information being relayed back down to earth could help answer many key questions about the formation of the universe and other galaxies, and even may help uncover habitable planets and other signs of life. But more than that, the project shows the progress of human ingenuity, innovation and technology. The first telescope used to look up at the stars came in the early 1600s. It took just over 400 years to develop a telescope that can now look back billions of years with such a high degree of clarity and precision.
There are advancements and innovations being made all the time inside the walls of corporations and over the next 50-100 years there will be new products, companies and industries that we may not be able to imagine today. The Webb Space Telescope is a symbol of what is possible and of why we should always stay optimistic, especially when looking up on a clear night and seeing the stars.
See some of the best images the James Webb Space Telescope has taken so far in this 2-minute YouTube video.
Justin J. Carbonneau is VP at Validea & Partner at Validea Capital Management.
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