Here are the top 35 long term trends that you can invest in. Some trends develop rapidly, while other develop slowly. Some trends move in an upward direction, while others move in a downward direction. Some are technology trends, while others are business trends. Some have been going on for a long time, and some are just getting started. You can outperform the market by playing these trends correctly. I tested this system in three accounts from December 2016 to May 2017 with about 35 stocks, and all three accounts were up 50% in those six months. We also limit losses by manually tracking trailing stop losses and using put options. It is possible to hedge and make defensive investments using the downward trends. Technology trends follow what is known as the S-Curve. Adoption starts off slowly with early adopters, then the technology goes mainstream, and then it hits saturation. Ideally, we will catch it after we know who the leaders are, but before or soon after it goes mainstream. Of course, we want to get out before it starts to hit saturation.
Let's try to stay positive for a moment.
People have been connected on the Internet, but there is still a lot of potential to connect devices to the Internet. This is a large trend that is expected to grow rapidly over the next 5 years and beyond. Many sensors will be required as well as software and other semiconductors. This market is expected to grow at an annual rate of 26.9% from 2017 to 2022 to $561 billion (Markets and Markets).
The good news is that you can have everything at the push of a button.
The bad news is that you won't know what else to do if it doesn't work.
We do not have general intelligence yet, but we do have specialized intelligence. The brain is basically a pattern matching system, and we can simulate it on a small scale. It can do things like recognize images, translate languages, and recognize voices. These are new capabilities that computers did not have before, and it is poised to enable all kinds of new applications. Autonomous driving, for example, requires image recognition. This market is expected to grow at an annual rate of 62.9% and become worth $16 billion by 2022 (Markets and Markets).
The good news is that it can drive your car.
The bad news is that you will never win another video game, unless it lets you.
There are hundreds of sensors in cars these days, and they are poised to enter the home, businesses, and industrial applications with advent of the Internet of Things. This market is expected to grow at an annual rate of 42% and be worth $38 billion by 2022 (Markets and Markets).
The good news is that all your devices will be really smart.
The bad news is that the government can track your every move.
Automation technologies are poised to accelerate with advent of artificial intelligence and the improvement in sensor technologies. Robots will be able to perform more functions. As minimum wages rise, employers will look to automation to reduce costs. This market is expected to grow at an annual rate of 17% and hit $135 billion by 2019 (Fortune).
The good news is that robot butlers are on their way.
The bad news is that you won't be able to afford one, because his sister can do your job.
Digital finance companies are poised for the future. These include peer-to-peer payment apps, other banking apps, as well as cryptocurrencies, where the quantity of money is mathematically limited. Governments are banning large notes to crack down on crime and improve traceability, and could ban cash altogether at some point.
The good news is that won't need to carry a wallet.
The bad news is that you will probably get stranded and starve when your phone dies.
Virtual reality has enormous potential for entertainment, gaming, and for simulation and training applications. The hardware is maturing, and the software is starting to catch up. This market is expected to grow by 46.7% and be worth $48.5 in 2025 (Grand View Research).
The good news is that you can escape the real world.
The bad news is that the real world won't want you back.
Wireless power could improve convenience for recharging mobile devices and could allow devices to be installed throughout the home without wiring or the need for wired recharging. This market is expected to grow at an annual rate of 23% and be worth $11 billion by 2022 (Markets and Markets).
The good news is that won't have to plug in your phone at night.
The bad news is that you won't be able to find it in the morning.
The cost of solar has dropped 99% and continues to drop. It is already competitive with fossil fuels, and advances in storage technologies could make them an effective replacement. Fortunes have been made in energy, and the shift to solar could mint a new batch of ultra-wealthy. This market is expected to grow from 338 GW to 662 GW from 2016 to 2026, an annual growth rate of 7% (BMI Research)
The good news is that you can generate your own electricity for your home.
The bad news is that it doesn't work at night.
Wind has similarly dropped in cost and is also competitive with fossil fuels these days. This market is expected to grow by 7.6% annually and be worth $310 billion by 2022 (BMI Research)
The good news is that it is clean.
The bad news is that we can't store it efficiently for when the wind stops blowing.
Nearly everyone that test drives a Tesla buys one. This technology could alter the automotive landscape, and create huge demand for parts such as Lithium batteries. The Hybrid and Electric car market grew by 33% from 2011 to 2015 and was worth $86 billion (MarketLine). This trend is expected to continue.
The good news is that we are not dependent on foreign oil anymore, and our dependence will decrease.
The bad news is that it is going to create instability in the Middle East.
Ecommerce continues to take market share from brick and mortar retailers, and is a long term trend that will continue for a long time. The improved selection, convenience of delivery at home, and lower costs are very attractive to consumers. This market is expected to $27 trillion by 2020 growing at 6% (EMarketer).
The good news is that you will have huge selection at great prices.
The bad news is you won't be able to hang out at the mall anymore.
Innovation in medical research continues to accelerate. This market is expected to grow at an annual rate of 12% and be worth $250 billion in 2020 (Grand View Research)
The good news is that you will live longer.
The bad news is that you need to save more.
As our dependence on technologies increases, the threat of cyber increases with it. Adequately defending a critical system is very expensive, and even the compromise of a low criticality system can damage the reputation of a brand. Cyber is asymmetric meaning that the offense has a huge advantage over the defense. Any weakness can be exploited, and the people are the weakest link. This market is expected to grow at an annual rate of 10.6% and be worth $202 billion by 2021.
The good news is that criminals will leave more footprints.
The bad news is that the offense has a major advantage over the defense.
As the population continues to age, the demand for nursing homes will continue to increase. This market is expected to grow at an annual rate of 5% and be worth nearly $700 billion by 2024.
The good news is that they will be help to care for the elderly.
The bad news is that the government can't really afford it.
As innovation continues to enable new therapies and the population ages, the demand for health care will increase. This market is expected to grow at 5% and be worth $3.78 trillion in 2018 (Plunkett Research) in the US.
The good news is that we will live healthier lives.
The bad news is that it keeps getting more expensive as more services are added.
Networking technologies continue to be developed and built out both wireless and wired. This trend has been going on for a long time, and will continue. The Enterprise Networking market is expected to grow at an annual rate of 6% to $64 billion by 2024.
The good news is that we will be connected to everything we love all the time.
The bad news is we will be connected to work all the time.
3D printing could revolutionize manufacturing by allowing companies to build parts on site. It could also be used for auto parts, hobbies, and maybe someday as a replacement for home delivery. This market is expected to grow at 28.5% annually to $30 billion by 2022 (Markets and Markets).
The good news is that you won't have to wait for delivery.
The bad news is that you will need to refill more cartridges.
Autonomous driving will create major winners and losers in the automotive space, and could adversely impact the employment of people that drive for a living. This market is expected to grow at 20% until 2021 and then 41% from 2025 to 2030 (Markets and Markets).
The good news is that won't need to own a car.
The bad news is that you won't know which Uber is yours.
As sensors improve, devices can be worn for fitness or medical applications for easy access or for monitoring the body. This market is expected to grow at a rate of 23% to $25 billion by 2019.
The good news is that your doctor will be able to monitor you more effectively.
The bad news is that you will be reminded to live healthy more often.
The Millennials are the largest generation and are edging up towards their peak spending years. They have very specific tastes and preferences.
The good news is that they will be close to home.
The bad news is that it will be too close.
Technology for growing organs continues to improve, and could affect the availability of organs and rejection rates. This market is expected to grow at 23.6% to $38 billion by 2021 (Markets and Markets).
The good news is that rejection rates will drop.
The bad news is that we already can't afford to retire, and now we are going to live longer.
Voice recognition can now recognize over 95% of words, and provides a new hands-free interface that could enable greater convenience. This market is expected to grow at an annual rate of 15.8% to $10 billion by 2022 (Markets and Markets).
The good news is that you won't have to push any buttons.
The bad news is that it might reorder the wrong product.
All kinds of data is available these days, and some companies have built software to help make sense of it all. People that use this software can make much better decisions, since they can often quantify decisions better and monitor more inputs. This market is expected to grow at a rate of 18% annually to $67 billion by 2021 (Markets and Markets).
The good news is that we can make better decisions.
The bad news is how much data is available about us.
The United States is a safe haven with very deep and liquid markets. It is home to some of the best companies in the world. As demographic trends create challenges in Europe, Japan, and China, the United States will be affected less and is the only market large enough to absorb the flight capital. This is a defensive position to take in the event of a major meltdown in the world economy. In 2008, just about the only asset that went up was the US dollar, and it rose 40%. It will likely stay stable until the world economy turns down.
The good news is that old people are really nice.
The bad news that they mismanaged our finances so badly when they were in charge, that they will break the system we all depend on. Of course, it will happen when they need it the most.
Now let's get realistic.
The Euro has imposed fixed exchange rates in countries that use it. These countries have different governments, cultures, languages, priorities, work standards, retirement standards, laws, bankruptcy rules, budgets, productivity improvement rates, and even inflation rates. Some countries get stronger and more competitive, while others become less competitive. Many of these countries never recovered from 2008, and have unemployment rates of 10%. It is very problematic to return to a domestic currency to revalue and regain competitiveness. If the move is telegraphed, money will flee the country to avoid the devaluation creating bank runs. The contracts are in Euros including the debt. Renegotiating will be a nightmare.
Many countries that use the Euro will continue to struggle forever and will make the currency weak. Europe and the Euro will be in big trouble when the next recession hits, as they barely survived the good years. Monetary unions of similar sized countries usually end in war. One country does well, and the other doesn't. The weaker country cannot leave, and the stronger does not want to subsidize the weaker. The work great for 10 or 20 years, because exchange rate risk is eliminated, but the differences accumulate. In the US, we heavily subsidize Florida, but nobody cares. We all have the option of moving there, and we feel a kinship because there are more similarities than differences. The Europeans feel much more attached to their country than their continent.
The good news is that they will do everything possible to postpone the day of reckoning.
The bad news is that they are making it worse with every action they take.
European banks have very large positions in non-performing loans. Even now, at the top of the business cycle, they are struggling to survive. Last time, the government saved us from a banking crisis, but today who is going to save them? Sovereign debt is very high, so Europe now has a policy to raid bond holders and even depositors next time around. This will cause bank runs that will exacerbate the banking problems.
The good news is that it isn't starting in America this time.
The bad news is that it will affect us anyways.
Japan's property market and stock market dropped by over 80% two and half decades ago, and it still has not come back. They were the first country to go over the demographic cliff, and they now have the largest sovereign debt in the world. They are printing currency like mad in a desperate attempt to counteract the effects of their old population, but it is not working. Japan is very dependent on exports. When most of the rest of the developed world goes over the demographic cliff over the next few years, they will be affected more than most.
The good news is that their products are really good.
The bad news is that their customers are aging and no longer want them.
Last time the government saved us from the financial crisis, but next time who is going to save them? People do not stop spending at the 65, they stop 10 or 20 years earlier, depending on whether they are educated or not. The baby boomers are now saving as much as possible. They created the boom in the 80s and 90s as they went into peak spending due to a large bulge in the population. They went into reverse in 2008, and double reverse in 2014. Revenues of even the best companies are falling these days. The stock market has been inflated due to buybacks from positive cash flow and cheap debt. They can't improve earnings, so they reduce shares instead. They are using financial engineering to improve earnings per share. The next recession will likely trigger a financial crisis in Europe, and sovereigns will be pushed to the limit. Some will default.
The good news is that government spoiled us with goodies for a long time.
The bad news is that they have an army and will do anything to survive.
Automobile sales have peaked. Sub-prime borrowers are defaulting on their loans, so banks have pulled back on lending. Incentives are record levels and are eating into margins. Lease and loan terms are longer than ever. Cars are lasting longer, and the volume of used cars is growing. Lease terms have to be tightened due to the lower resale values. Many borrowers have negative equity that must be rolled over when a new car is purchased.
The good news is that used cars will be cheaper.
The bad news is that we won't need as many people to build the news ones.
Malls are suffering due to the combination of the aging demographic and ecommerce. Both long term trends are affecting foot traffic, and large anchor stores are closing even now at the top of the business cycle.
The good news is that you can get what you want without leaving home.
The bad news is you really want to get out of the house.
Retailers are suffering from the combination of the aging demographic and ecommerce in a similar way. They are also closing stores at high rates even at the top of the business cycle. Discount retailers are doing better than most, as the middle class is getting squeezed.
The good news is that bots are nicer than the people.
The bad news is that they can't answer your questions, you can't try on the products, and you have to wait for delivery.
Health care costs keep rising because of new innovations, and because it does not operate like a real market. When I investigated Lasik, they told me everything up front. Here are your options, here are the risks, here are the costs. Go home, do your own research, and let us know if you are interested. The cost of Lasik keeps dropping, and the quality keeps improving, because it is a voluntary service. The rest of the market does not function like this. They won't tell you the cost even if you ask, and if they did you would have nothing to compare it to. The lack of transparency is downright un-American. There are three parties. The person receiving the service is different from the one paying for it, and that changes everything. Price is not a factor for the person choosing the provider, so of course the providers do not put effort into controlling cost or offer any transparency.
This problem could easily be solved just by increasing transparency. Have third parties rate each provider's rate schedule, or let them choose from some predefined schedules. Then insurance plans can be tied to cost. Maybe the deductibles will be higher for the higher cost providers, or maybe coverage will only reach to a certain level. The level 1 services may be completely free. This will allow insurers to offer lower cost options. Some plans already control costs by offering fewer choices, so why not make it more transparent? Some providers will voluntarily charge less to increase volume, while those that have excess demand will charge more. Some will adopt better technology that allows them to reduce cost and increase volume, an incentive that they do not have right now. That is how a normal market works. The problem is that there is no transparent price competition, which forces cost saving innovations and learning.
The good news is that they keep coming up with new innovations to help us live longer healthier lives.
The bad news is that it is making us uncompetitive and it is going to bankrupt us.
Our entire system is built on debt and consumption. Debt brings forward consumption. It is good in the short term, but it is harmful in the long run. We are now living in the long run. We are still creating the debt, but we are no longer getting the consumption. We subsidize debt, suppress interest rates using monetary policy, and create new money in the form of debt. In theory, it gets lent out and deposited over and over, as banks are only required to hold 10%. Instead of going towards income and ultimately consumption, the velocity of money (number of times it changes hands) has dropped, and the debt has gone towards bidding up the prices of existing assets.
People use it to bid up the prices of stocks, bonds, and houses, for example. We are forcing people to speculative take risks with their money, because they cannot make a decent return in a bank, money market, or even investment grade bond. Businesses don't see demand because of the aging demographic and falling incomes, and see little need to invest in internal operations.
Why create the incentives for debt, if it is not having the intended effect? When money is free, it gets wasted just like everything else. Interest rates are like the shot clock in basketball. They force people to use their limited resources wisely, and take initiative. That, of course, creates efficiency, which we are going to need. We are teaching the developing world everything they need to know, and we are letting them compete with us cost free. That is how new entrants get a foothold. The start out as bottom feeders, but then they learn and they move up into higher margin markets.
The public has a concern about free trade agreements. It is not a problem if you are the same level of economic development. It becomes a problem when you combine developed and developing economies, and you teach your future competitors everything they need to know. It is not really an incentive system. It is really an information system. The incentives just give us a reason to acquire expertise. It is very simple. The people that know the most make the most.
The good news is that the debt can still be rolled over.
The bad news is that many of the debtors are zombies operating without a shot clock. They will roll it over until they have to default, and that will be a problem for the banks.
Inflation is adjusted downwards from actual cash outlays, because the quality of products keeps improving. However, GDP is adjusted upwards for the exact same reason. Why do they go in opposite directions? Should better quality adjust the cash outlay up or down? Every time I buy a computer, I seem to spend the amount of cash. Everyone's raised are tied to the official inflation number. If I am spending the same amount of money for the better product, then why are they reducing my raises?
How do you even quantify the quality improvement? Isn't it obvious that it is completely subjective? Why would you trust government economists to make adjustments for any reason? They already have the ability cherry pick what they measure and how they weight it, but we also allow them to adjust the easily quantifiable cash outflow? What else are they messing with?
All of the alternative measures I have seen produced by private entities show inflation is much higher. The people care about the cash flowing into and out of their account. If our expenses are rising faster than our incomes, because the baseline increase in CPI that everyone watches is manipulated, then what will happen over 15 years?
The middle was not getting hollowed out before they made this change. People would change employers and apply more pressure, if they knew they were being cheated. The starting baseline for negotiation was adjusted downward, because it suited the elites. Do you think the people cutting the checks in government and private industry are complaining? They grow richer and more powerful by the day.
They play games with housing and other expenses too. All of these games are designed to reduce the inflation rate. The reason they want to reduce the inflation rate is because social security raises are tied to the official inflation rate. They couldn't reduce the expense in an honest way, so they did it in an underhanded way.
They used to measure CPI for the elderly, which is higher because of greater health care costs and fewer consumer goods purchases. They stopped measuring it because they were afraid the elderly would demand that social security be tied to that number instead.
There is another measure called GDI that is the theoretical equivalent to GDP. You can measure expenses or income. The GDI number is not manipulated because the public does not watch it. It is almost always a little lower. If inflation is understated and nominal GDP is overstated, what does that do to real GDP? Of course, it makes the government look really good, which protects the incumbents.
This has been going on for over 15 years. Inflation is understated by at least a good 1.5%, probably more. It adds up over the years. People don't know they are being cheated, so they don't demand more. Do you see why the middle class is getting squeezed, and the people paying them are getting richer?
The ironic thing is that social security is funded by payroll taxes, which are proportional salaries. They reduced their tax base by suppressing salaries, and shot themselves and the public in the foot.
The final trend is declining middle class incomes, which will persist until these measurement shenanigans are corrected. Even if they are corrected, there is international competition from developing countries, reduced demand from demographics, and automation to contend with. This will create volatility and black swans (rare bad events) in the political, financial, and social fabric of our society. You can already see it happening. The aging demographic will amplify these problems as consumer spending is affected (70% of the economy). Worsening dependency ratios will put more pressure on government spending, the working age population, and risk taking.
One way to improve incomes and job prospects domestically, is to replace payroll taxes with revenue tariffs. They are high enough to fund the government, but low enough to let the products in. We would replace one regressive tax with another regressive tax. Prices would rise, but so would incomes. The founders envisioned that the entire federal government would be funded this way. Basically, we would tax the foreigners instead of domestic labor. Currently, we heavily tax domestic labor, and we let the foreigners in for free. Other countries often remove taxes on their exports or have low taxes to begin with. However, taxes on our exports are not removed, because we do not have a VAT. With all taxes put together, we are probably quadrupling the cost of domestic labor. Do you see how much of an advantage we give foreign labor, and how much of a disadvantage we give domestic labor? We are slowly losing our expertise advantage.
The good news is that they may have postponed the collapse of the system.
The bad news is that you will probably be dependent on it when it happens.
The right focuses on efficiency, and the left focuses on safety. Safety is an easier sell, but we actually compete with each other on efficiency. The government keeps grabbing more power in the name of safety and security. The most efficient business does the best, and the most efficient countries have the highest GDP per capita. The United States has the advantage of economy of scale and uniformity across our market, and we are farther right than most developed countries. That is why we have world beating companies, the most innovation, and a high GDP per capita.
The system has been clicking left in name of safety for over 50 years. It is possible to make it so safe, that it becomes too inefficient to compete. If it too safe, there is less need to take risks, and the incentives are reduced. If there is less risk taking, there less learning, innovation, and dynamism, which is the essence of how we compete globally. We are now competing against both developed and developing countries. We taught the developing countries everything they know. They will move up the value chain and compete with us, just like Japan and Korea did.
If you go too far left, you get communism. If you go too far right, you get fascism. Both are totalitarian. The people in power directly use their position to enrich themselves. In the US, they mostly have to wait until they leave government service. There is a range in the middle where you can successfully operate. Clearly Venezuela and Greece have gone too far left. They were once prosperous, but they lost it because not enough transactions are voluntary and therefore efficient. If you go too far right, then the powerful take advantage of the weak, and too many people get left behind or even killed. The US is nowhere near either extreme right now, but if the middle class continues to suffer, they will demand more extreme measures.
If they stay on the path that they are on, the two parties are going to end up throwing each other in jail, and accomplishing nothing, like in Chicago. In the corporate world, we are very careful about implementing new rules and controlling expenses, because we know they add up. We can easily remove them if they become a hindrance. Not everything requires a rule or a law. Most people will do the right thing, or as close to it as they can afford, just to preserve their reputation. Fear of the law or getting fired is not driving our daily decisions. It is the social pressure to do the right thing, because we may never recover if our reputation is damaged, whether it be personal or for the business.
The fiscal outlays will likely continue until the money is gone. It is, of course, happening because people are living longer. When these program were created, the average lifespan was 61. They were limited anti-poverty programs, not general retirement programs covering a quarter of our lives. We live almost 20 years longer now. No one will be realistic until there is just no possible way for the numbers to add up anymore. That is why they started playing games with the headline numbers as noted in the previous section. They are trying to postpone the day of reckoning, but there are unintended consequences.
My belief is that we will start running $2 trillion deficits in the next recession, and the recovery will be even weaker than the last due to the aging demographic and even lower incomes. We will be forced to balance the budget at the worst possible time, and those most dependent on government will suffer the most. If you describe the system to someone for the first time, their first question is how can they afford it? The answer, of course, is that they can't because there aren't enough young people.
The way to truly help people is to help them help themselves, and give them the freedom to choose the best alternative. See the previous section for the biggest keys on how to do it. Our government is designed to seize up and do nothing if there is disagreement. The founders put those checks and balances in place on purpose. It is going to be difficult for either side to ever "win". They just can't retain enough power in all branches long enough, and I don't think either side has all the answers. We need to find the right balance between safety and efficiency. Judging by the debts of most countries in the developed world, almost all of us are not efficient enough to compete in the global economy together with developing countries. The developing world is operating without costly safety nets.
The Congress, the President, the Courts, the Business Lobby, the Media, and each segment of Voters are all powerful to veto the things that they don't want, but none is powerful enough to pass what they need. The deadlock shows up in the public debt, as the government effectively caves to all parties. The needs of the middle 50% should be the priority, because they form the middle rings of the ladder that are the key to the American Dream. The people below need something to aspire to, and the upper middle class will likely benefit from the same policy actions.
People and businesses hate competition, and will do everything they can to reduce or eliminate it. They will look for every advantage they can get away with, fair and legitimate or not. Competition can disrupt individual lives, but it makes the system stronger. In the industrial age, automation helped low skill workers. It used to be that one guy did everything, and it took years to learn how. When it was broken into smaller steps, less skilled people paired with machines could master each step faster and maximize efficiency. With the advent of computers, middle skilled jobs starting getting replaced since people could do the information work themselves. Nowadays, there might be one secretary per 50 people. With the advent of artificial intelligence, computers now do not need specific instructions in all situations. They can learn from examples and automate situations that were not understood in detail when they were created. Think of it as automating things that are just similar and not identical. They can calculate how similar something is in a probabilistic way.
A younger faster growing population would create more domestic demand and efficiency, but we don't produce enough babies and the public wants to limit immigration. We would be wise to study the immigration system of Australia, Canada, and New Zealand. It is based on merit. Our immigration system is the greatest draft on Earth. We steal the smartest, hardest working people from all over the world. They often come here, because they don't think their efforts will pay off in their home country. We don't have to invest in them for 20 years before they become productive.
We have some huge strategic advantages. Our entire country was built on immigration. If anyone is going to learn a second language, it is going to be English. We are really good at integrating them, because we emphasize what all of us have in common, and we deemphasize the differences. That is also why our message resonates so well around the world. High immigration and high quality immigration has worked very well for the Australians, and continues to work even to this day. They haven't had a recession in 25 years, they have low government debt, and their middle class is doing just fine. Study them.
China may be communist, but the people are free to work, hire, and invest as they please within the Chinese system. It is based on voluntary transactions, which are the key to efficiency. They are the farthest right of any major economy that has these freedoms, and that is what we will have to compete with in the future. They will grow up into a very lean, very mean machine, with greater economy of scale than even we have. They have had an unreal work ethic for thousands of years. Now they have the incentives, information, and economic freedom that they need to harness it. They prioritize the public good over individual rights, which has allowed them to move much faster than a democracy, like India.
In some ways, Democracy and Capitalism are polar opposites. They form the Yin and the Yang that created our prosperity and ensured that it was widely distributed. Capitalism favors the haves over the have nots, but Democracy ensures that the have nots have a path to become haves. If the system tilts too far in favor of Capitalism and all the gains go to the top, the voters will revolt. If the incentives to work hard, acquire expertise, and take risks is eroded too much, the money will simply disappear. We seem to be suffering from both maladies right now, because the government has effectively caved to both the business lobby and the voters. The middle rungs of the ladder are shrinking, and the people taking risks feel exposed and that risks don't pay. The bills aren't getting fully paid, so the liabilities get transferred to the government.
The prosperity at the top is artificial. It is the result of financial engineering, and it will collapse in the next recession. It is the result of extremely low interest rates for an extended period, printed money, increased debt, stock buybacks, and forced risk taking by savers who can't earn anything in the bank. They cannot squeeze out any more short-term performance. They are out of bullets and have no idea what to do when the next recession hits. They are raising interest rates into weakness, just so they can cut them in the next recession. They will cause the recession long before they hit their 3% target, if something else doesn't happen first. As incomes in the middle are squeezed and the population ages, where will the demand come from that the owners of businesses need? Growth comes from two sources, population growth and productivity improvements. Productivity has stalled, and so has growth in the working age demographic.
The good news is that we are still the most advanced and innovative.
The bad news is that the money is running out of both private and public coffers.
You are investing in growing markets, and I try to pick the best 5 or so companies in each. In a rising tide all boats rise. Think of what would happen if you were investing in shrinking markets. If would be very difficult to pick the winners because they are fighting over a shrinking pie. They would have to take market share to grow. In a growing market, it is much easier to carve out and perfect a particular product or service and then just ride the market higher. They can turn around and invest in related products and services, because they have growing cash flow.
The business trends tend to move slowly, except for the business cycle. The technology trends that I follow are often growing at rates of 30% or more per year for 5 to 10 years. Many times, there is already a track record for both the market and the company. These are the companies I focus on for this service. If you can pick them earlier, then you can get them cheaper. I have chosen a few of those as well, but it is a smaller share of the portfolio. Sometimes they are small companies with the right technology, and sometimes they are big companies that have committed to the right market. It will take time for these investment to pay off, because the trend hasn't taken hold yet in sufficient quantity. If the small companies are chosen correctly, the returns will be phenomenal. The big companies will be less volatile as they have more revenue streams. They need a bigger share before their numbers are affected.
Technology trends go through three phases. The first is early adopters, the second is mainstream adoption, and the third is market saturation. We try to pick them early or part way through the mainstream adoption phases. At this phase, the leaders are already established with best of breed products and services. The already have a track record of growing revenues, which you can see. We mix in few that are just emerging from the early adopter phase in the hopes some will pay off huge on a cheaper investment.
Motif allows you to buy a basket of up to 30 stocks for about $9. You specify the amount to invest in the motif, and you can set the percentage that goes into each stock. Motif will go out and buy fractional shares to fill the portfolio. You can rebalance the portfolio if something changes, or you just want to reset the percentages. You can customize the Motifs that I set up for yourself. You can add or subtract your own stocks, and you set the percentages however you want. You can set them by market cap, equal weight, or any custom combination that you prefer. I recommend doing this in a tax deferred or tax free account, so things don't get too complicated at tax time with all of those fractional shares.
This makes it very easy to invest in our trends. I have setup motifs for a number of different trends, and I have set up three Motifs with diversified trends. You can invest in any trend you want, or you can buy all three diversified trends. If you buy the diversified trends, you will own nearly 90 stocks. You won't worry too much if some bad news event affects one of them because you own so many. From time to time, I trim the weakest 5% and replace them with new ones. I am not married to any one stock, and manage it very much like a portfolio. You can get this kind of diversification even with just a few thousand dollars.
We use several methods to control risk. Here they are in increasing complexity. You don't have to use all of them. The simplest way to control risk is to limit how much you invest. The second step is diversification by putting a small amount in many stocks. This way if something goes wrong with one of them, we don't worry too much. Next, we monitor the positions using trailing stop losses usually at a 12% loss. They do not automatically sell. If it triggers, then that is our signal to investigate. We aren't attached to any one stock, because we have many. We have no issue with trimming poor performers, but the decision will be based on earnings potential. We won't react to negative news events for individual stocks if we believe the earnings potential is still intact.
Next, we use put options on the NASDAQ (QQQ) to hedge the whole portfolio. We typically buy them 15% below market three months out through earnings season. This caps our loss at about 15%. Each contract insures about $13k of value. These can be purchased cheaply assuming volatility is low. For the kind of growth rates we are targeting, the insurance rates are cheap. We renew them after three months, so that we lock in some minimum gains from the previous three months' earnings season.
If the market falls rapidly, then the put options will protect us. If it falls slowly, then the trailing stops protect us. If something bad happens to an individual stock, it doesn't bother us too much because we own many. If many stocks are tripping their trailing stops, then we may hedge more aggressively, or start exiting the market.
It is anything buy boring as the portfolio is designed to be a hyper-growth portfolio. You will have a lot of very interesting stocks to monitor. When I tested this system for six months, the portfolio generated a return of 50%, or about 125% annualized. If you implement the system fully, you will own over 100 stocks, even if it is just $100 in each one. There is always some activity on a few of them, especially during earnings season. You can monitor them for news and for trailing stops. You can trim the weak ones, and add weight to the strong ones. You can monitor my updates to the portfolio, and the analysis produced by Agidime.com at both the company and trend levels. You can research the new picks that I add to the portfolio.
Because there are so many, it is difficult for us to produce detailed original research on all of them. Instead, we curate from the freely available information on the web, and point you to relevant articles. We only write something if it is specific to our system, or we have an original insight that we need to share. Between our picks, our writing, the curated articles, and your own research, you should have good coverage of what is happening.
There are some sites like seekingalpha and yahoo finance, where you can track news and analysis specific to your own portfolio. There is enough information flow and decisions to please even a day trader. My belief is that is impossible to predict what will happen day to day, but revenue and earnings can be estimated. You can tweak your portfolio around what you believe will happen around earnings. If you are more hands off, then you can wait for me to make adjustments to the portfolio, and just click rebalance when you want to update. If you are long term and more hands on, then you can review it periodically and customize to suit your preferences.
Just the fact that you know these trends may make it possible for you to save yourself. We have a premium service where we make specific recommendations using these trends.
If you want specific recommendations based on these trends, then click here.
It may melt up before it melts down. Bubbles normally go vertical in the last year, and can easily double. Bull markets die of excess, and we are kind of in a goldilocks zone right now. It is not too hot and not too cold. For a bear market to take hold, there needs to be a major misallocation of capital caused by major excess risk taking. People are too cautious and muted right now. I just don't see anything impending that is big enough to trigger a change in direction. The yield curve is the best predictor of a recession, and it is not yet inverted, although it is manipulated by the central bank. There is some sub-prime debt going bad, because of suppressed incomes that we need to watch as well. The government knows how dire the situation is, and will take any measures necessary to delay a day of reckoning. Pessimism sounds smarter, which I why I was able to write more about it. Do you want to be right and feel smart, or do you want to make money? You don't want to be a pessimist or an optimist. You want to look at both angles, and be a realist. You can limit losses with put options and trailing stops, and you can hedge using the downward trends. They cancel in the short term, but are both correct in the long term.
The good news is that the trend is your friend, if you understand it.
The bad news is that your friends and family don't yet.
PhD, Electrical Engineering, University of Illinois at Urbana-Champaign
MS/MBA, University of Illinois at Urbana-Champaign
BS, Electrical Engineering, University of Florida
Here is one example. Of course, you know that IBM's Watson beat the World Champ in Jeapordy. Want to see what else it can do? It can dissect your personality based on your writing. Here is what Watson came up with on the article I wrote on this page.
It is totally true. I am open to any idea, but I won't agree unless I actually agree. I know too much.
I stay calm, but I can act any way I want
I used to be an introvert, but I became more extroverted as I had to lead people in more challenging situations. It kind of gives me the best of both worlds... the extreme intelligence of an introvert, and the ability to share and lead as an extrovert.
I am extremely careful to be accurate. I am an entrepreneur that takes small risks every day, but they are small and calculated. I believe you can earn incredible returns and control risk at the same time with expertise.
It is true for both engineering and business. With my four degrees, incredible variety of experience, and the reading that I do, I have learned a lot about a lot of things. I don't read for knowledge. I read for action. I think about how to customize it to my situation, and I test whether my theories work.
I don't do what I am told. I try to figure out what they really need, and do that instead. I advise them more than they advise me.
After I have done my homework, I won't back down unless you say something brilliant. The time for talk is over. It is time to execute.