Investing in a Changing World

Adapting your style. What do you think is a common theme amongst businesses that fail? What happened to Kodak?  What’s currently happening to the retail industry? One commonality is that they failed to adapt with changing times. We live in a digital world and many businesses failed to foresee the rise of Amazon. Our world has become faster and more innovative and this has left very little margin of error and has put the pressure on for retail and other industries to ensure that they up their game when selling goods and services.

As I’ve mentioned in earlier posts, think of your investments as different businesses you own. Although you likely own a very insignificant piece of the business, your decision should be driven by future prospects of the company and that company’s sustainability to continue generating profits for the foreseeable future. Spotting a good investment is difficult- but not impossible. In my opinion, a good investment is defined by three things: 1) There is a significant need by the consumer for the goods/services produced and will likely continue to grow for decades to come 2) The business has a proven track record of paying dividends to shareholders 3) The business is investing in the “future” of things. In the latter, what I’m trying to say is that it’s a company that develops products or offers services that will be needed desperately by future generations. Plain and simple- it’s more important than ever to invest in companies that will offer alternative goods and services to today’s. Humanity is bound to reach a tipping point and scarcity of resources is not a question of if, but rather, a question of when. This points to opportunities in the renewable energy space. We’ll likely live in a world one day where we’ll have to tap into renewable sources of energy that are clean and efficient. This level of demand will present a great opportunity for profits and long term growth for years to come.

Then of course, there’s our digital world. Artificial intelligence is growing at a rapid pace that is on track to take over menial jobs in the future and assist businesses in gathering data and making efficient use of that data to drive every day decisions. Artificial intelligence has already reached consumers and we’re making every day use of it. Think of wearables– your Apple watch or a Fitbit. Products have been to introduced to have the capabilities of tracking functions in our body to saving people’s lives in an emergency. In short, wearables have become the now and are poised to continue to be the future and are the next smartphones. Being an enterprising investor, this presents yet another opportunity to tap into a market that has immense potential in the future. 

Sustainability of water. This may sound too simple but that’s the key- investing shouldn’t be difficult. Adaptive investing comes down to this mantra: when there’s a problem, there’s a company out there with a solution and as an enterprising investor, you should be motivated and passionate enough to find time to figure out which companies are thriving in this space. The key is to determine how you can profit from companies that are providing an important solution in response to a consumer or environmental demand. Investing in companies that are providing ways to make efficient use of water are a key driver in replacing decades old ways of handling a precious resource that humans need to survive. There will likely be a long term demand in urban areas- especially in emerging markets like India, where there is already a scarcity of clean water and lack of access to quality drinking water in general. The increasing rigor of environmental regulations to push efficient use of resources and cleaner water treatment should be able to drive this business forward. Water is “boring” from an investment perspective and we take it for granted. Yet, according to a Water development report published by the UN, almost 6 billion people worldwide will live in an area of water shortages for at least one month a year by 2050. Global water demand is set to explode as resources continue to become scarce. “Boring” investments are often lucrative over the long term because they are less likely to have media coverage because that isn’t what sells these days. What sells in the media are popular companies like Apple, Facebook, Google.. Avoid the noise and stick to what matters most to you. 

Aging population. One of my favorite industries to invest in for the long term is health care and more specifically, healthcare REITs (Real Estate Investment Trusts) that are focused on assisted living such as nursing homes. The largest generation in US history- Baby Boomers, are set to retire in huge numbers for the next few decades. REITs- by definition, are required to distribute 90% of their taxable income to shareholders in the form of dividends. This makes them very attractive and REITs often considered to be “recession proof” or safe havens- whether you’re invested in a housing REIT or a senior citizen nursing home- people will always need a place to live and be taken care of in their golden years. Life expectancies are expected to increase in the developed world, and therefore, it is likely that investing in senior living for the long term will continue to be a profitable. In addition to stock price appreciation, never forget the power of dividend reinvesting.

Compounding works its magic if you buy and hold a steady business that has been known to be a dividend aristocrat. Remember- time is the most precious commodity we have, so the earlier you can start putting money away towards quality businesses with high dividend yields, you are essentially printing money for yourself with minimal effort and then some more.  According to the US Census Bureau, slightly more than 5% of seniors aged 65 or above live in senior living facilities. That percentage increases to 50% for those aged 95 or above. Again, REITs that include senior living facilities don’t get much attention. However, it is to your advantage to invest in “under the radar” companies that are poised to generate excellent long term growth. 

Aerospace and Defense. Now and for years to come- the United States will continue to increase defense spending. Some of the biggest names in this business are based out of the US- Boeing, Lockheed, and Raytheon; to name a few. Although massive increases in defense spending are questionable from a political standpoint, the investment possibilities stand relatively sound for the long term. Another thing- avoid letting politics and emotions get in the way of making investment decisions. You should be investing for long term profitability and thus, allow your investments to be a passive source of income that can contribute to your net worth. Hence, keep emotions out of investing and let simple research and a company’s long term goal and track record be the sole drivers of your investment strategy. We’ll get more into letting pure numbers do the talking as opposed to your emotions in a later post. 

With geopolitical tensions running high and a sense of urgency to keep up with global superpowers, defense spending in developed countries will continue to drive long term profitability. Technological impact and a corresponding need to develop innovative aircraft and other technologies should drive demand for years to come. Something important to note is that the US is the largest supplier of defense products around the world. This trend should continue as emerging markets continue to increase defense budgets to protect their borders. As the global population continues to increase, air traffic should increase simultaneously as well. I also see Aerospace & Defense as a “slow but steady wins the race” type of industry. Slow but steady typically wins the race from an investment perspective. 


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s