New Paradigm

In the investing world, a new paradigm is a revolutionary way of considering companies and issuers that has a significant effect on analysis and decision-making. This can be a political or economic event, a new finding in academia or speech or publication by a founder or business leader (along with a range of other important occurrences). New paradigm draws its roots from the idea of a paradigm shift in science, in which technology or new findings completely change the way people think about or interact with a subject.

New paradigm became a widely used phrase in the 1990s, as marketing firms and businesses began to use the term for almost any new product or campaign. It was notably used during the dotcom boom years. At times, it seemed that anything and everything involved with the Internet was described as a "new paradigm" or a "paradigm shift." The years in the late 1990s were characterized by high-flying tech stocks that eventually crashed. From 1995 to 2000, the technology-dominated NASDAQ index rose from below 1,000 points to more than 5,000 points. Technology companies became a new paradigm for investors and analysts as their products and modes of thinking had the ability to fundamentally change the way that businesses operated and grew.

The Great Recession also provided a new paradigm for many investors as the notion of rooting out and supporting more sustainable investments came into the limelight. It became important to some investors and asset managers to consider environmental, social, and governance (ESG) factors when placing bets. As became evident with the housing bubble and crisis, complex financial instruments like mortgage-backed securities without sound underlying assets proved disastrous.

The Harvard Business Review (HBR) often publishes pieces that reflect and dig into paradigm shifts or new paradigms in the business and investing worlds. For example, “You Don’t Have to Choose Between Fast, Cheap or Good. Instead, Change the Paradigm” (April 2018) posits that, instead of compromising between two out of the three above values, leaders should instead focus on optimizing all of them. By being creative, using data, and modeling start-up behavior, the article’s authors argue that leaders should be able to re-think the way they make tradeoffs. New frameworks like this can help investors frame various challenges such as which assets or asset classes to select for a portfolio.