8 investment themes to rally around
by Rob Isbitts [1]
Business owners have business plans so in the heat of the battle they can always go back to "home base" and remind themselves of what they are trying to do. Those who don't often find themselves out of business. Investing is like that, too.
One aspect of my own approach that has been a guiding light over the years is to have a finite list of long-term investment themes that are expected to drive our research and stock selection over that time period. Many of the themes are the same ones I have had in place for a decade or longer.
We do add or remove sub-themes as time goes on, merge themes together, or introduce new ones when we see fit. It's a fluid process for my team and me, and recently we updated our list, which contains eight different broad themes. I am sharing them with you here in hope that it will help you develop your own personalized version of it that works for you.
The vast majority of stocks that my firm researches and owns will fit one of these eight thematic areas. Some are named in terms you have heard from others, and some are descriptions unique to our firm. Here they are:
- Aging gracefully: The baby-boomer population is retiring and will spend an ever-increasing portion of their wealth on health care and leisure.
- Asia's century: Asia is home to a diverse group of economies including underdeveloped markets like Vietnam, advanced economies like Japan, and everything in between.
- The Barbell Economy: Income inequality has been widely publicized since the financial crisis, but there are opportunities for companies that service both sides of the spectrum.
- Connected consumer: The development of the mobile economy, primarily e-commerce, is no longer a trend, but rather the new reality.
- Energy diversification: While we do not hold the belief that the use of fossil fuels is coming to an end, we do believe that the mix of energy types used by consumers and businesses will change.
- Industrial evolution: Automation and high-tech manufacturing processes are enabling companies to operate more efficiently and produce "smarter" products.
- Infrastructure: The domestic need for infrastructure improvement is urgent, while the demand for infrastructure projects abroad continues to grow.
- Scarcity: Food production faces a long-term challenge of high demand vs. limited supply, and leading companies along the food chain should make good long-term investments, albeit with some ups and downs along the way.
The biggest difference I see between professional investors and those who do it in their spare time is that the former tend to construct their portfolios across multiple levels that they can clearly define if asked. That is not to say that professionals do better than amateurs. Sometimes they do, sometimes they don't.
But as the market environment gets more opaque and challenging for all investors, I think that tomorrow's winning investors will be the ones that know today what they are doing not only from the "bottom up" (which stocks or funds to own), but also from the "top down" (what is the ultimate goal), how to get there, and what strategic investment areas and techniques will be targeted to get there.
"Investing" can be glorified trading, but to me, it is not that at all. It is an expression of how the investment manager sees the world, not only today but well beyond today. There are industries evolving, consumer tastes changing and progress occurring in many parts of the globe. This creates opportunity for investors who strive to research and understand this, and exploit it not necessarily as short-term stock traders, but as business people managing money in an investment portfolio format.
Courtesy of marketwatch.com [2]