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TEN
INVESTMENT TRENDS FOR THE FUTURE
by
Hans Wagner
TradingOnlineMarkets.com
August 10,2006
The
McKinsey Quarterly recently included a web-only article on ten
trends for the coming years. You can subscribe for free
to their online version if you are interested. I thought it would
be worth mentioning these trends to help identify any investment
implications.
Trend 1: Centers of economic activity will
shift profoundly, not just globally, but also regionally. Asia's
GDP (excluding Japan accounts for 13 percent of world GDP, while Western Europe accounts for more than 30 percent) will
catch up with Western Europe within the next 20 years. As a result we
should see a growing demand for consumer goods as the people in these
nations gain more disposable income.
Investment
idea:
Consumer companies with a strong presence in Asia and transportation
companies that have a strong presence in the region and have global
reach.
Trend 2: Public-sector activities will balloon, making
productivity gains essential. The unprecedented aging of populations
across the developed world will call for new levels of efficiency and
creativity from the public sector. The demand for health and
retirement security will overwhelm a nation's ability to support these
services through taxes. Proven private-sector approaches will
likely become pervasive in the provision of social services in both the
developed and the developing worlds.
Investment
idea:
Companies that can provide these services in a cost effective manner;
firms that can leverage technology to outsource these services to low
cost countries.
Trend 3: The consumer landscape will change and expand
significantly. Almost a billion new consumers will enter the
global marketplace in the next decade as economic growth in emerging
markets pushes them beyond the threshold level of $5,000 in annual
household income—a point when people generally begin to spend on
discretionary goods. By 2015 consumer's spending power in emerging
economies will nearly match the spending power of Western
Europe.
It is estimated that 100 million Chinese households will achieve
European income levels by 2020. Further the Hispanic population in
the United States will have spending power equal to that of 60 percent
of all Chinese consumers.
Investment
ideas:
Consumer & luxury goods companies with a strong presence in Asia and
other developing countries that are achieving economic success.
Companies those are able to identify and target the consumer market
niches that will continue to evolve. Transportation companies that
are able to move the raw materials and finished goods easily throughout
the world.
Trend 4: Technological connectivity will transform the way
people live and interact. We are still in the early stages of
this revolution. Geography is no longer the primary constraint to
social and economic organization. As new developments in
biotechnology and nanotechnology come forward, people throughout the
world will find new ways to leverage their promise. More
transformational than technology itself is the shift in behavior that it
enables. We work not just globally but also instantaneously.
We are forming communities and relationships in new ways (indeed, 12
percent of US newlyweds last year met online). More than two billion
people now use cell phones. We send nine trillion e-mails a year.
We do a billion Google searches a day, more than half in languages other
than English. For perhaps the first time in history, geography is
not the primary constraint on the limits of social and economic
organization.
Investment
ideas:
Software companies with expertise in joining together diverse
capabilities to create new products and services.
Trend 5. Ongoing shifts in labor and talent will be far more profound
than the widely observed migration of jobs to low-wage countries. The
shift to knowledge-intensive industries highlights the importance and
scarcity of well-trained talent. The increasing integration of global
labor markets, however, is opening up vast new talent sources. The 33
million university-educated young professionals in developing countries
is more than double the number in developed ones. For many companies and
governments, global labor and talent strategies will become as important
as global sourcing and manufacturing strategies.
Investment
ideas:
Outsourcing of all types of professional talent, not just low wage
workers to educated talent pools in India, China, and other places with
and educated talent pool.
Trend 6. The role and behavior of big business will come under
increasingly sharp scrutiny. As businesses expand their global
reach, and as the economic demands on the environment intensify, the
level of societal suspicion about big business is likely to increase.
The tenets of current global business ideology—for example,
shareholder value, free trade, intellectual-property rights, and profit
repatriation—are not understood, let alone accepted, in many parts of
the world. Scandals and environmental mishaps seem as inevitable
as the likelihood that these incidents will be subsequently blown out of
proportion, thereby fueling resentment and creating a political and
regulatory backlash. This trend is not just of the past 5 years
but of the past 250 years. The increasing pace and extent of
global business, and the emergence of truly giant global corporations,
will exacerbate the pressures over the next 10 years. Business,
particularly big business, will never be loved. It can, however,
be more appreciated. Business leaders need to argue and
demonstrate more forcefully the intellectual, social, and economic case
for business in society and the massive contributions business makes to
social welfare.
Investment
ideas:
Companies that find ways to make good profits and be socially
responsible.
Trend 7. Demand for natural resources will grow, as will the strain
on the environment. As economic growth
accelerates—particularly in emerging markets—we are using natural
resources at unprecedented rates. Oil demand is projected to grow
by 50 percent in the next two decades, and without large new discoveries
or radical innovations supply is unlikely to keep up. We are
seeing similar surges in demand across a broad range of commodities.
In China,
for example, demand for copper, steel, and aluminum has nearly tripled
in the past decade. The world's resources are increasingly
constrained. Water shortages will be the key constraint to growth
in many countries. And one of our scarcest natural resources—the
atmosphere—will require dramatic shifts in human behavior to keep it
from being depleted further. Innovation in technology, regulation,
and the use of resources will be central to creating a world that can
both drive robust economic growth and sustain environmental demands.
Investment
ideas:
Water filtration, pollution control, and energy companies, especially
those that offer new forms of clean energy.
Trend 8. New global industry structures are emerging. Even basic
structural assumptions are being upended: for example, the emergence of
robust private equity financing is changing corporate ownership, life
cycles, and performance expectations. In many industries, a barbell-like
structure is appearing, with a few giants on top, a narrow middle, and
then a flourish of smaller, fast-moving players on the bottom.
Similarly, corporate borders are becoming blurrier as interlinked
"ecosystems" of suppliers, producers, and customers emerge.
Even basic structural assumptions are being upended: for example, the
emergence of robust private equity financing is changing corporate
ownership, life cycles, and performance expectations. Winning companies,
using efficiencies gained by new structural possibilities, will
capitalize on these transformations.
Investment
ideas:
Companies that offer special capabilities in important process networks
and supply chains that are able to offer substantial improvements and
capture premium profits.
Trend 9. Management will go from art to science. Today's business
leaders are using highly sophisticated software to run their
organizations. Bigger, more complex companies demand new tools to run
and manage them. Indeed, improved technology and statistical-control
tools have given rise to new management approaches that make even
mega-institutions viable.
Long gone is the day of the "gut instinct" management
style. Today's business leaders are adopting algorithmic decision-making
techniques and using highly sophisticated software to run their
organizations. Scientific management is moving from a skill that creates
competitive advantage to an ante that gives companies the right to play
the game.
Investment
ideas:
Methods and tools (software) that match skills to the job needs and
training requirements. Corporate software and business consulting
companies that offer special capabilities that help manage the mega
companies.
Trend 10. Ubiquitous access to information is changing the economics
of knowledge. Knowledge is increasingly available and, at the same
time, increasingly specialized. The most obvious manifestation of this
trend is the rise of search engines (such as Google), which make an
almost infinite amount of information available instantaneously. Access
to knowledge has become almost universal. Yet the transformation is much
more profound than simply broad access.
New
models of knowledge production, access, distribution, and ownership are
emerging. We are seeing the rise of open-source approaches to knowledge
development as communities, not individuals, become responsible for
innovations. Knowledge production itself is growing: worldwide patent
applications, for example, rose from 1990 to 2004 at a rate of 20
percent annually. Companies will need to learn how to leverage this new
knowledge universe—or risk drowning in a flood of too much
information.
Investment
ideas:
Companies that offer new ways to capture and distribute specialized
knowledge. Also, companies that possess specialized knowledge that can
be employed to lower costs or create innovative ways to differentiate
products or services.
© 2006
Hans Wagner
Editorial
Archive
As
a long time investor, I was fortunate to retire at 55. I believe you can
employ simple investment principles to find and evaluate companies
before committing one's hard earned money. Recently, after my children
and their friends graduated from college, I found my self helping them
to learn about the stock market and investing in stocks. As a result I
created a website that provides a growing set of information on many
investing topics along with sample portfolios that consistently beat the
market. Feel free to visit the site at http://www.tradingonlinemarkets.com/
CONTACT
INFORMATION
Hans Wagner
tradingonlinemarkets.com
Manitou Springs, CO USA
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