Reindustrialization

INVESTING IN REINDUSTRIALIZATION

Learn about what is reindustrialization and how it is more than just disruptive innovation. Understand the investment opportunity.

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Investing in Reindustrialization 


The Opportunity 

Reindustrialization offers the greatest investment opportunity of our times. Yet it is not widely understood. The few funds and ETFs that focused on disruptive innovation have delivered the most extraordinary returns, for example ARKK and GIGE. Reindustrialization is a thematic investment approach that contains the elements of disruptive innovation but also includes some other factors.  An innovation can be disruptive, yet it may not reindustrialize. For example, the introduction of Positron Emission Tomography for heart disease diagnostics is a disruptive innovation, but certain aspects of its value chain make it less than ideal as a reindustrialization investment. To benefit from the Reindustrialization opportunity, ETF/funds/portfolios must understand and apply the full potential of reindustrialization to create meaningful value for investors.

What is reindustrialization?
Reindustrialization is the process of rebuilding firms, government agencies, and countries in accordance with those paradigmatic shifts in science that make science more efficient. Scientific efficiency results from profound improvements in the scientific process or by introducing new scientific paradigms or processes that alter or greatly improve the epistemological, ontological, or ethical foundations of science. In other words, reindustrialization is not merely when science is applied to discover something new – it is when the nature of science itself changes. The streams of innovations that come from improving one or more parts of the scientific process, or from an alternative, more efficient, scientific process, create the potential for substantial, systemwide, and surreal growth and productivity.

Substantial: The application of new science to create technology delivers new and powerful benefits to consumers. It creates a considerable and meaningful economic and emotional advantage over existing technologies. It gives significant competitive and comparative advantage to firms and countries. It goes beyond the Schumpeter’s creative destruction and leads to a fundamental change in the dynamics of industry and/or global competition.  

Systemwide: Reindustrialization changes the structure of the entire economy. The reindustrialization innovation produces change across multiple sectors and leads to global restructuring. The innovation paradigm needs to be extraordinary to a point that it alters the structure and dynamics of the economy. Its impact extends beyond a single sector and drives change across all industries. It creates platforms that enable novelty and forms never-seen-before clusters of innovation.

Surreal: The innovation contains emotional value, an element of surprise, and unexpected attributes that make it a cognitive or behavioral sensation or phenomenon. In addition to practical uses, it produces a powerful feelings of fascination and interest. This means that in addition to some tangible economic benefit, the innovation has been translated into an emotional value for customers.

How to find good investments opportunities in Reindustrialization?
Reindustrialization investment is driven by innovation in new technologies such as artificial intelligence, blockchain, and quantum. However, not all innovations generate highest returns. AIAI has developed a proprietary methodology to enable firms to understand, develop, and apply reindustrialization centric investment methodology. It is comprised of eight steps.

We have developed the criteria to select a set of innovations that belong in the reindustrialization arena.

Step 1 and Step 2 (The Qualification Process)

This is known as the qualification process and it is based upon two drivers:

Innovation: 
There are several attributes of an innovation that makes it a reindustrialization investment candidate. The disruption potential is treated as a separate variable. This innovation variable defines and measures the innovation itself.
Disruption: We estimate and measure the disruption potential of a technology based upon 12 factors.

Steps 3 to 6 (Research)
We then study the structure of the market and the performance potential of various performers across a wide spectrum of sectors and industries:

Market Dynamics: The competitive dynamics of reindustrialization are different than normal competition. We treat the competitive dynamics as a complex adaptive system.

Operating Dynamics: Our model performs multidimensional analysis of the operating dynamics of a firm. Innovation needs to be properly embedded in the functioning of a firm. It is not enough to pay lip service or to implement technologies on an experimental basis. The entire strategy of a firm needs to be aligned with reindustrialization driven innovation. Specifically, AI is now corporate/agency adoption ready. Value creation from AI has been proven and its adoption maps are discoverable.

Geopolitical: Reindustrialization gives rise to widely different geopolitical dynamics, often changing the strategic stability paradigms and redefining competitiveness of countries. It redefines strategic rivalries and alliances – often recreates the supply chains.

Behavior and Narratives: We explore the existing emotional states, behaviors, and emerging and dominant narratives associated with the firm. The risks and return potential insights are used to develop valuation analysis.

Steps 7 and 8: Asset and Options Valuation & Asset Allocation/Portfolio Planning (Action)

Given the uniqueness of reindustrialization, we approach valuation from a mix of asset and (real) options valuations. We triangulate and fine-tune valuation with behavioral and narrative elements. We then use a unique approach for asset allocation.