The concept of a proxy has been predominantly commandeered by the financial sector, where it is wielded with the intent of maximizing profits. Over time, this practice has garnered a somewhat nefarious reputation due to its applications. Today, we aim to demystify the concept of proxies, shedding light on the nuances and dispelling some of the shadows cast over this misunderstood strategy. So, let’s cut through the jargon and clarify what’s really going on—without needing a finance degree or a decoder ring.
WHAT IS PROXY INVESTING
Proxy investing refers to the strategy of gaining exposure to a specific asset class, sector, or market through indirect means, rather than directly purchasing the asset itself. Proxy investing allows investors to benefit from the performance of the underlying assets while potentially reducing risk and enhancing diversification. This approach is particularly useful for accessing markets or asset types that may be difficult to invest in directly.
For the none financial actors and investors, this sounds more of like gibberish than it does sense. Here is a simpler example of the idea;
A proxy in everyday life is hiring a real estate agent to buy or sell a house. Instead of handling the complex process directly, you rely on the agent's expertise and connections to navigate the market, negotiate terms, and complete the transaction on your behalf. This way, you achieve your goal indirectly through the agent's actions.
“In a war, don’t back one combatant or another, invest in companies that sell them the bullets.” -Peter Lynch
Investors have come to use this format of investing, and assessing opportunities in the marketplace. They look at businesses that are competing and they look for what they have in common. They do research or what they call homework. Yes! Every investor still does homework just like your kid at the end of the day. Once they spot a thing that both competing businesses use or share in their supply chain or in the creation of products, they then invest in that particular thing that both businesses competing use in their products. This is called thematic proxy.
During the California gold rush (1848-1855), everyone went for gold mining, competing among themselves to find the biggest deposit of gold. But most of the miners didn’t make any money nor were they successful in find much in gold. The people who made money (serious money) were those that provided essential services of selling mining equipment, clothing (Levi’s) and alcohol.
These service provider understood that all the competing miners would all need tools, clothing and liquor as they dig for the gold. That is how the Proxy strategy was employed at that time. And it is still works and relevant in this age too. Thematic assessments in projects and in ideas, is to have an eye to look and see what everyone else will need to be able to execute their tasks in whatever domain of work and activity.
The question is, can you apply thematic proxy in your workplace? Can you add value to your organization by pinpointing proxy situations that benefit the whole workplace environment. These questions are here to help you improve your business, workplace, organizations and investments. It is not so much as a one time event and it ends. It is a lens, a way to look at life as general principle.
"The real voyage of discovery consists not in seeking new landscapes, but in having new eyes." – Marcel Proust