Presentation Amsterdam Hotel The Grand, February 10, 2000

Internet investment

Good morning, ladies and gentlemen. My name is Herma Koornwinder. I would like to wish you a warm welcome and inform you that today I am acting as chair for an illustrious company of eight expert speakers, who will interrogate today’s main subject – Internet investment – from all kinds of angles and each from his or her own specialism.

     Naturally, I will present each of the speakers to you before they make their case to you. On the subject ‘Internet investment’, we will today be looking at aspects such as:

     - how revolutionary the digital possibilities are
     - but also which threats are associated with them 
     - who the potential customers are
     - how safe but also how unsafe internet investment can be 
     - the enormous opportunities which internet investment offers
     - and, that being the case, what the ingredients are to go about it successfully 

     We will also consider the effects if stock exchanges start working together globally, because that is also in prospect at the start of this new century. I would just like to note that each speaker has been asked to talk for no more than half an hour and I will enforcing the time limit strictly so that you can take lunch at around half past twelve. After that, I hope to see you here again at two o’clock this afternoon.

     It has so been arranged that I shall have the opportunity to explain my beliefs and vision to you first today. The drawback with this job is that no-one introduces the chair, so I will do that myself. I have already told you my name; I am the CEO of KGMN or Koornwinder Global Market Navigation. In the press, I am regularly portrayed as a contrary investment expert. So let’s keep it at that. ??????? 

     My contribution for today is informed by my urgent desire to warn you about what is hanging over us all and what is still – consciously or unconsciously – massively underestimated by the vast majority of people.

     I am sure you know that right now, it is possible to buy a car for the lowest price ever. With one mouse click you can find out from One Swoop how, when and via which EU country you can most cheaply acquire the car of your choice – complete with all conceivable factory guarantees and delivered right to your door. Following an idea from a famous Dutch person who recently immersed himself in the subject. 

     Yet we are all much too conservative
     But I don’t expect you are open to that yet. No, you are still happy to pay 10,000 guilders too much. Because we people are conservative and are hard to convince to try new things. Sure, we may occasionally take a chance on a product that costs two guilders less than the leading brand, but the bigger the sums of money become, the more wary and cautious we are.

     And the financial world is the most conservative of all
     So if we extend that reasoning, that cautiousness ought to be particularly true of the financial world. Well, ladies and gentlemen, never was a truer word spoken, because in the financial world, investment doctrine is still based on sacred cows like index-linked investment, long-term and sector investment. Which means that, against the backdrop of an investment doctrine which has barely changed in fifty years, internet investment is about to unleash a genuine revolution.

     From 2000, everything will move 10, 100, even 1000 times faster
     However revolutionary it may seem, as with long-term developments from the previous century such as from stagecoach to automobile, by moving from courier to e-mail we have definitely closed the slow-motion era. From the year 2000, everything will move 10, 100 or 1000 times as fast; and, naïve as we are, we still absolutely do not realise it. That is why in The Netherlands we are still on the eve of the digital era, a global flash economy in which only few companies will be able to keep up with developments. A country like the United States already has such a head start that we can no longer catch them up.

     I predict that this transition from the automation to the information era will have significantly further-reaching consequences than the industrial revolution in the last century. And that will apply above all to the financial world, because with the rise of the ‘diginomy', the time has come in which we will have to throw all the old investment models and our beliefs about them overboard.

     After all, who within the financial world has ever predicted a downturn in the market with the help of this doctrine? The so-called ‘authorities’, the banks? None of them saw the Asian crisis coming, even though they had offices in those countries. It is nevertheless the case that specialised banks like ABN AMRO and Merrill Lynch or Morgan Stanley pull small and large investors with them in their wake. Including the pension funds, who have a little under 1,000 billion in their care to secure our retirement incomes.

     How much is a recommendation from these institutions worth, when their predictions have been wrong so often in the past? And I am not the only one who has been going on about this for the past twelve years. I am reading more and more that others are thinking along the same lines too. I will give you a few examples:

     - in Het Financieele Dagblad of 22 December 1998, the IMF warns that financial institutions are falling short; “Computer models and employees display significant shortcomings.”

     - in1997, Nobel prize winner Marcowitz let it be known that his theories no longer work.

     - in 1992, Van de Paverd (chairman of Effas) advised that investors should look for ‘neue Kombinationen’

     - Robeco's analysts announced that the indicators no longer work.

     - upon his departure, Professor Heertje concludes that economic science is failing. He asserts: ‘Government must correct the failure of economics. We need to shake off pure economic theory and see what other disciplines have to offer. Nobel prize winner Lorentz devised a theory to bring everything together, so creating a universal frame of reference. A frame of reference like that is lacking in economics.' So Heertje observes. And that is precisely what I have done.

     - Pieter Wind of ING-Barings concurs that traditional valuation methods are far from being the only consideration when assessing the market, and have been rather pushed into the background. But the most common objection is that fundamental analyses of the value of shares are no longer relevant in this new era.

     - Morgan Stanley, too, complains that current valuations are no longer based on fundamental considerations.

     The Day Traders With Their Russian Roulette
     Since we can nowadays get all our investment advice twenty-four hours per day from the internet, why would we still wait for a phone call from that one investment adviser? It’s unfortunate for that nice man with the friendly voice we have enjoyed speaking to so often, but sadly for him he is next in line for the chop and will be replaced by “Mister Click”. And in the near future, when internet and TV merge, the possibilities for investing from your armchair will become even more extensive and simpler. Because viewers of a financial show will instantly click off their share transaction based on the advice given on TV. As long as you know where to find the right button, you no longer need to have a deep understanding of investment models. In this way, investment becomes:

'Any time, Any place'

     We will be able to make out a few different groups of investors
     Firstly, the ever growing group of investors who are no longer interested in company values, but only in returns. On one programme or another they hear a tip to buy De Telegraaf and they hit their buttons. The share price promptly shoots up 20%. The first one to hit the button wins. This ultimate form of Russian roulette will appeal above all to the so-called ‘day traders’ and those addicted to TV who can play ‘Las Vegas’ all day. This will mean that more and more new companies, with no track records, will be able to get listed on the stock market.

     The pension funds with their lamentable performances.
     The third group – I am skipping the second one for a moment – are the pension funds. They are completely unlike the previous group. No ‘Las Vegas’ management for them. But nevertheless, the pension funds will have to adopt a new course within the new landscape of the digital age in order to optimally manage their pension assets because this is where the lag in accepting new technologies is greatest. If their performance were to improve by 1%, we would be suddenly freed of all our problems in the care sector. Except, you are no doubt thinking, that there are no staff to be hired. But of course there would be if we were to offer these people a comfortable income and boost their status.

     (Video from ‘the only thing I am trying……………….’ to end. Plus actual answer’)

     The big shareholders
     I skipped the second group because I can now position them between group 1 and group 3. They are the big shareholders and the individual investors, some of whom do some investing themselves while others do not want to do anything themselves and until now were dependent on advisers, managers and banks – who, by the way, are still using a now seriously outdated investment doctrine.

     The banks and their new echelon of analysts
     The asset manager and relationship manager will disappear. On the other hand, I see an entirely new and extremely important role reserved for the analyst post-2000. Because these new analysts will, like me, focus on the internet and, like me, set up their own navigation systems which allow investors who don't want to play Russian roulette to nevertheless take the right investment decisions at the click of a mouse. This kind of analyst will no longer have to travel to the corners of the earth to assess the markets there. He will have the world market on his laptop. These analysts will play a crucial role in the future, not just in systematizing the digital information but also in raising the alarm in time. In short, with one click, they will warn customers and be able to safeguard them by taking them out of the market.

     The great banking danger
     But if the financial world fails to adapt to the new ‘diginomy’, the click of a mouse is just where the danger will lie. Because what are banks currently doing? They are all determined to get as many customers as possible and to ferret out as much money as possible from anywhere they can. A generation ago, the credo was: put something by for a rainy day. Today, the credo is: exploit added value. After all, added value is dead money. First-time buyers no longer have to save, they get a mortgage worth seven times their salary just like that. Here in the Netherlands we talk about the polder model, but we are living a milk and honey model. On top of that, the focus is not on improving results by increasing returns, in other words improving quality; instead, the preference is for achieving quantity by attracting large numbers of customers, because that is where the profit is seen to lie.

     It will not be long before a major bank can reach millions of customers worldwide with one click. And if that one click sends out bad advice, it could have dramatic consequences for the world economy, because if a large number of customers follow bad advice at the same time, there is no telling what the effects might be. The potential exists that we could create an unstoppable self-fulfilling prophecy. In this scenario, it is not the quality of the advice which matters, but the power of the sheer numbers of customers. Whole countries could become the victims of their arbitrary impulses. And so gradually the danger draws nearer of wars no longer being fought on the battlefield but on the internet as cyber war.

     The heavy responsibility of government
     Finally, a grave warning. I need to get across to you that our country is in serious danger of missing the boat. Not only is there a great shortage of highly qualified IT specialists in the Netherlands, but the intake of first-year students is not nearly enough to meet even existing demand. In global terms, our country is way behind. Whereas in the US and the Far East there are primary schools where pupils work only with screens, our children often have to make do with discarded company computers.

     In order to create the conditions to stop our country from getting left behind in the current zeitgeist, which could result in serious misfortune overcoming us, at the end of my introduction I call on our government to set up a Ministry for Information and Communication Technology at the earliest opportunity. This is desperately needed.

     I thank you for your attention and would now like to introduce the next speaker this morning, Mr... …………………………………..