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!