The holy grail of investing is to buy an investment before it is recognized, ride the price up and sell when it reaches its potential.
Where can you get leads on the investments to buy? You could get ideas from other investors, professionals, friends or other public sources. Most investors are not on the leading edge of this information flow, so you won’t get in before the public is aware of the opportunity. You could use your own powers of observation to see developing longer term trends and choose investments that may have better returns.
I am not advocating trading on a short-term basis to catch market swings.
Look around you, what changes do you observe or see in the news day after day? Some examples include rapid growth in the number of Americans over 65, rapid growth of developing countries’ economies, and the desire for cleaner, more efficiently produced electric power.
Let’s explore opportunities in developing countries. In the investment press, these countries are often listed as “emerging markets.” Looking at Asia, we find countries with expected growth rates double that of the United States, each year, for the next 10 years. More important, the “buying classes” -- middle and upper-middle classes -- are expected to explode over the next five years.
In China, these classes are projected to increase by 88 percent, India by 97 percent and Indonesia by 108 percent! For just these three countries, that’s an increase of 194 million people in the middle class or better. What will they be buying? Often similar products and services as American middle-class buyers purchase, with a localized look. This includes higher quality or imported foods, fashion clothing and consumer electronics.
In foods, multinational companies such as Nestle, Carrefour or ABInBev are selling their higher quality/cost products using their manufacturing or distribution expertise. For example, Nestle modified the soft drink line for Southeast Asia to incorporate local flavors and address nutritional needs. Packaging was also modified to fit the local environment. When researching which companies may be winners, look for those with the ability to adapt their methods and products to different cultures.
Closer to home, our aging boomers are creating a need for more adult living facilities of various types. When generating investment ideas, remember to focus on longer term, developing trends. Many investors will identify the trend but will not analyze the effects on other linked industries. These are the companies available at lower cost because they are not so obvious.
As with any other investment, once candidates are identified, thorough research is required to choose the best in the industry. This process takes time. Since you are looking for long-term investments, you can focus on only a few trends at a time and when selections have been made, monitoring is not time-consuming. Put on your observation glasses and see what new investment ideas you can generate.
The rewards may greatly exceed the effort.
Tom Roberts, owner of A New Approach Financial Planning in Lakewood Ranch, can be reached at (941) 927-9590 or Tom@ANewApproachFP.com.