The significance of global knowledge will be more important in the investment sector compared to many other sectors requiring special expertise, according to Aalto University Professor of Finance Markku Kaustia.
“In some situations, you need to be familiar with local companies or legislation. However, global knowledge is increasingly important in the investment field, and will be even more pronounced in the coming years,” Kaustia says.
Knowledge in the financial sector could be a key competence for Finland."
From a Finnish perspective, being less tied to location can be a good thing, if we can develop our knowledge in the right direction.
“Knowledge in the financial sector could be a key competence for Finland. Finland has a well-functioning infrastructure, excellent level of digital know-how and language skills, as well as a reputation for reliability, which can be a really valuable asset in this sector. What’s more, we have high-level research and knowledge in the financial sector.
This means that to stay at the top in the investment sector, you should focus on developing your own competencies.
You also need to abandon any illusions you might have regarding your competence!”
Overall composition of a portfolio and risk strategy are key
Along with their global insight, skilled investment professionals take a comprehensive and broad approach, and provide business analyses that deliver added value. Which individual shares you buy today is not really that important in overall portfolio management.
Which individual shares you buy today is not really that important in overall portfolio management."
“Of course, you will turn a profit by following speculative purchase recommendations on listed companies provided by stock analysts. However, this is because the stock market is profitable in the long term in general, and not because the analyses themselves are correct—in fact, their accuracy could be compared to a blind marksman,” Kaustia says.
“Such analysis is worth nothing, for the most part. The nature of markets is such, however, that people are very interested in this sort of thing—even though the majority of the analyses is pointless.”
Kaustia says that business analyses that provide real added value are carried out in completely different contexts, for example with respect to corporate acquisitions or unlisted companies.
More important than a single purchase recommendation, or monitoring a particular company, is the portfolio as a whole, the establishment of a strategy appropriate for the investor, and determining the right risk level as well as taking controlled risks.
“Deciding whether any particular risks are controlled or not sounds simple, but it’s anything but easy,” Kaustia points out.
Megatrends of digitalization and responsibility
Besides the importance of global competition and knowledge, the digitalization of the sector and responsible investment will grow in significance in the future. The changes are already underway, and Kaustia thinks that over the next five years, these megatrends will be re-shaping the investment industry in a major way.
“Machine learning and algorithms will also allow for more efficient portfolio management, enabling analysts to access larger datasets more easily,” says Kaustia.
This will underline the value of competence even further, as increasing productivity reduces the need for human labor.
Responsible investing is so new that a great deal of work still needs to be done to be able to account for it in investment analyses"
“Responsible investing is so new that a great deal of work still needs to be done to be able to account for it in investment analyses. Since it’s such a new phenomenon, we don’t even know what kind of data we need exactly.”
Various consumer-oriented investment applications will also have an impact in the investment world in the future.
“Investment applications are not that great just yet, but they will become more and more interesting in the next few years. Helping consumers take part in the investment world will also create plenty of work for professionals.”
Read what are three basic mistakes made by investment professionals according to Markku Kaustia.
Kaustia is one of the instructors at Aalto EE's The Certified European Financial Analyst (CEFA) -program. The program provides you with uniform high-level competencies and entitles you to use the well-known CEFA title. Read more about the program that starts in October 23, 2019.
