Tuesday, December 22, 2009

Spotting the Megatrends

Statue of Roman Emperor Constantine

The Catholic Megatrend
I just finished my fall term course, History of Christianity I.  The scope of the course was the history of Christianity from the time of Jesus to the Middle Ages.  Over this period of time, Christianity grew from a little offshoot from Judaism to become the religion of the West.  One of the major turning points in the history of Christianity was the conversion of the Roman Emperor Constantine.

Just years before Constantine came onto the scene, the Emperor Diocletian in the year 303 A.D. began a period of persecution of the Christians, leading to the deaths of many martyrs.  Only 10 years later, Emperor Constantine reversed this persecution and issued the famous Edict of Milan, tolerating the Christian religion.  Before the end of his life, Christianity was on its way to become the official religion of the Empire.

What does this all have to do with investing?  This is what is referred to as the megatrend.  It is a major trend that brings about profound change in the way the world operates.  An onlooker in the third century in the Roman Empire would have noticed that something was up.  There were these groups of people who had outlandish claims of eating their lord's body and drinking his blood.  Aside from this, they were generally law-abiding citizens who were very charitable.  Their churches would actually provide for the sick and the travelers.  What was certain was that more and more people were joining them.  Everyone knew the world was changing, but some doubted if this would continue.

The pagans who continued to practice their pagan worship were in for a surprise.  In a short span of roughly 50 years, the pagan cult went from being the official Roman religion to becoming nearly wiped out.  It is easy to deny the trend, but the consequences could be grave.  This is the same way with investing.  Once every few decades, a breakthrough in technology or human thinking would change the way the world operates.  If you invest in the right companies at the right time, you're in for a ride of your life!

Some Megatrends of the Past
Let's look at some megatrends that have occurred in the last century.  If you were around at that time and placed a bet on it, you'd be uber-rich by now.  Just from the top of my head, I can think of 2 megatrends.  In the first half of the century was the automobile megatrend.  Needless to say, automobiles are now ubiquitous. However, it was not so in the early part of the 20th century.  By investing in the best-of-breed companies early on (GM, Ford, Toyota, Honda [disclaimer: GM was best of breed decades ago, not 2008 for obvious reasons]), you would have reaped excellent returns.

Another more recent megatrend is that of the personal computer.  Who is the richest man on Earth right now?  None other than Microsoft founder Bill Gates!  Split adjusted, Microsoft (Ticker: MSFT) IPOed at roughly $0.10.  Even after 10 years of lackluster performance, the stock sits at $35, which is 350 times the initial stock price!  If you had put $10K into MSFT in 1986, you would be sitting on $3.5 million by now.  In fact, in 2000, you would have had $4.6 million!  46000% return in a mere 14 years is not bad at all!  That's approximately 55% return annually!

To ignore the megatrend is to ignore super returns!  The good thing about megatrends is that they are easy to spot!

Megatrends of the Future
So, let's look for megatrends of the future!  How do we exactly do that?  Well, it's actually quite simple in my opinion.  It is looking for something that is inevitable and most of the time, it's actually quite obvious.  I'm sure that 30 years ago, everyone knew that computers would eventually replace the typewrite.  It was just a matter of time.  So, ask yourself, what is inevitable?

Jim Cramer has been saying this for some time and this megatrend has just started materializing.  He calls it the "Mobile Internet Tsunami".  It's all about smartphones.  In my previous post on Google, I had already talked about their Android smartphone OS.  5 years from now, all of our cellphones will be smartphones, enabling us to talk on the phone, text message, surf the web, do work, watch TV, listen to music all on the same device.  This megatrend is easier to spot because it has already started to occur.  The Apple iPhone was the first device to bring awareness to the general public.  It is only a matter of time when the iPhone like devices become commonplace.  Cramer suggests investing in Apple (ticker: AAPL), RIM (ticker: RIMM), Google (ticker: GOOG), Qualcomm (ticker: QCOM), etc.

Another upcoming megatrend would be the renewable energy megatrend.  I also talked a little about this in another post.  Global warming awareness is reaching the point of critical mass as the talks in Copenhagen just ended.  I know there's a lot of debate regarding whether global warming is caused by human activity, but that is NOT the real focus.  Regardless of the truth or lack thereof in the global warming hypothesis, governments are turning towards renewable energy.  Perhaps it's not even for saving the Earth.  Maybe Americans don't want to rely on the Middle East, Venezuela or even Canada to hold the key to what powers their country.  Whichever way we see it, it is inevitable that the world will shift to renewable energy.  Is it going to be solar energy?  Wind energy?  Geothermal energy?  Who knows?!  I'd bet it's going to be a combination of all of these, plus more.  The point is that there is going to be a major shift in how energy works in this world, and you can use that to your advantage.

Another favourite trend of mine is robotics (obviously not because I did my master's in robotics and I work for an automation company!).  This is another megatrend, but I think we're at least 10-20 years from the beginnings of that, perhaps even more.  This change, also, will be inevitable.  One day, we will all have a robot in each of our homes and we will no longer need to do chores like washing dishes, vacuuming, etc.  Heck, we don't even need to vacuum now, with the Roomba robots roaming around!  This megatrend I'm talking about is the proliferation of robots and automation in everyday life.  Hints of that have already begun in a company called Intuitive Surgical (Ticker: ISRG).  Surgeons can now perform surgery remotely by use of robotics using their technology.  This is only a start.  In another 10 or 20 years, watch for this trend to materialize!

I will admit: I don't know everything!  :)  There are probably some other megatrends that I have missed entirely, but not to worry, these trends are fairly obvious.  I'm sure you'll be able to spot them when they arise.  Until then, buy a smartphone and start googling for companies developing renewable energy and robotics!

Tuesday, December 1, 2009

At a Crossroads with Google

I love Google (Ticker: GOOG)!  Come on, who doesn't?  Their search engine finds everything, their maps are the best in industry, Youtube is synonymous with "online videos", I use their Chrome browser exclusively (except when some sites employ bad programming and don't adhere to standard HTML code), I own an HTC Magic smartphone that is powered by Google's Android OS, even the ads on their search results are good...they're about the only ones I click on because they actually help me find what I'm looking for, and most obviously, I use blogger (you're on a blogspot site right now...enough said).  Lastly, their stock has risen more than 100% in less than a year, which makes me a happy guy because about 50% of my portfolio is made up of Google.

Future Prospects
I have very little doubt that Google will be the first $1 trillion company (by market capitalization).  It's not going to be Microsoft, Exxon Mobil, Walmart or any of the Dow Jones Industrial Average component stocks.  Out of all of the mega-cap stocks, Google has the most momentum.  Analysts have raised their price targets to $650 and beyond, and considering the stock was at $263 less than a year ago, it's not bad at all.

Here are a few things that are going well with Google:

  1. Youtube is becoming profitable.  When Google bought Youtube a couple of years ago, it was a cash sinkhole.  Bandwidth and storage costs a lot of money and Youtube had no way of monetizing all that traffic that it was getting.  Two years later, Google is claiming that Youtube is on the verge of being profitable.  If Google was able to rake in huge amounts of cash with Youtube being a sinkhole, imagine what it means when Youtube becomes profitable.  Just to put things in context, Google ranks #1 as the most used search engine.  Yahoo and Microsoft take 2nd and 3rd place, but if you actually break out Youtube's search results from Google's search engine results, it is actually the real second place holder, sitting above Yahoo and Microsoft.  So, you can imagine how much money it can generate for Google.

  2. Android is making a quiet, but sure invasion into the smartphone market.  Until the Motorola Droid debuted on Verizon's network, most Americans had no idea what Android is.  Now, it's the new buzz...the new iPhone killer, etc.  I don't think the Droid or Android itself will kill the iPhone, but it will be a worthy challenger.  I own an Android powered phone and I love it, but I'm a little on the geeky side, so that's expected.

    In any case, the Android Market works similarly to the App Store on the iPhone.  Google keeps a portion (albeit smaller portion than Apple's) of the revenue when someone purchases an app.  Android is expected to grab about 20% of the smartphone market in a couple of years.  However, Google's real money maker is not in the app revenues themselves.  With a Google powered OS, users will most likely use the Google search engine and, in turn, click on Google ads.  Additionally, with the recent purchase of the mobile ad company, AdMob, Google is even better positioned to monetize from smartphone users.

  3. Chrome - Chrome is another little heard of product from Google.  Originally, it was a browser Google released a little over a year ago.  Google's mission was to deliver a browser that was fast, especially when running code like Javascript.  This is because Google is banking on cloud computing to slowly replace programs that reside on harddrives on PCs.  The faster a browser can be, the better performance cloud computing will have.

    Continuing along with the same philosophy, Google has announced Chrome OS recently, an operating system that would run netbooks.  Google really has vision in this department.  People are scoffing at Chrome OS, saying that it would never replace a real PC run by Windows.  And they are right...to a certain degree.  Computers with Chrome OS would never be designed to do serious number crunching or gaming because the processors on them will be relatively weak, but a major shift in personal computing will eventually render powerful PCs as archaic.  Whether one likes it or not, cloud computing is the future of computing.  If you don't believe it, when was the last time you sent something to your webmail account (whether it be gmail or yahoo mail or hotmail)?  Probably very recently...and why did you do it?  It was because you wanted to access that file while you were away from your computer at home or work.  That is the driver behind cloud computing.  People want to be mobile and want to access their information any and everywhere they will be.

    How will Google monetize from Chrome?  I have no good answer.  Perhaps Google Apps (the applications Google currently offers on the cloud) will work better on Chrome, and by adopting Chrome, people adopt Google Apps, which is eventually going to be a money generator, whether via ads, subscription fees, or something else.  Regardless, I am confident that Google will grab a large piece of the cloud computing pie.

So What's the Problem?
Sadly, we can't have the cake and eat it too.  There is one problem with Google.  It's management leans quite heavily to the left.  It has repeatedly voiced its support for same sex marriage (http://www.lifesitenews.com/ldn/2009/oct/09102912.html), which as you know, is contrary to the Catholic (or shall I say thousands of years of human society's) definition of marriage.

Google is known for their motto, "Do no evil," but I do not believe they really know what "evil" is.  To them, evil is equivalent to doing harm to others, such as stealing, murder, etc.  By opposing anti-same sex marriage legislation, they believe that they are encouraging love and toleration.  Because Catholics oppose homosexuality does not necessarily mean that we discriminate against homosexuals.  The age-old definition of marriage is between a man and a woman, and I believe that by changing the definition itself, we are undermining the basis of human society.  It is not that much different from changing the definition of the word "table" to mean "chair".  It just seems silly, because a table may look like a chair with 4 legs, but ultimately, it is not a chair.

I will not go into why same sex relationships are morally incorrect according to Catholic beliefs (you can read about that here http://www.catholic.com/library/Homosexuality.asp and here http://www.catholic.com/library/gay_marriage.asp), but the fact that Google supports same sex marriages is problematic for us Catholics.

I have to confess that I still hold Google stock and I'm trying to be totally honest to you, my readers and myself.  I love the company and what they do, but I have a concern for their social/political views.  Buying and using a product of Google is likely not that problematic (e.g. imaging you know a store owner who is homosexual, would you not buy from him just because he is homosexual?  That would almost be intolerant), but owning shares of it mean that one approves of the actions of the company and is supporting it.

I am torn...please pray for me.