In 1982, John Naisbitt's book "Megatrends - Ten New Directions Transforming Our Lives" popularized the idea of looking at the world and figuring out the main things that were happening and that were likely to happen in the future. More than 25 years later, we can see that a lot of what he wrote was right. We do have massive globalization, a knowledge-based economy and so on. Understanding and acting on such trends is fundamental to long-term investment strategies.
This article takes a look at some of these key (mega) trends and how they are likely to influence the investment landscape over time. There are in fact many such trends, and all have some sort of impact on the financial sector. We will examine a few major and a few minor trends to gain an impression of this broad field and what one can do to benefit from it.
The Aging Society
This is probably the dominant trend and a true megatrend that will influence the financial landscape for decades. In industrialized countries, the age pyramid has changed radically - from a nice triangle with lots of young people and a few elderly, to a bell shape with an alarming number of aged. This means that growth rates in the current top economic nations such as the U.S.A., Germany and France are likely to stagnate or decline. Immigration can counter this aging trend to some extent, but it cannot eradicate the effects.
As far as investment is concerned, this means that industries that care for the aged are likely to flourish, while industries and careers that rely on young people (teaching, for example) are likely to face hard times. Also, developing countries with more traditional age pyramids are growing fast. There will be investment opportunities in the developing countries, not just in the obvious cases of China and India, but in all sorts of places in Asia, South America and even Africa as these countries continue to industrialize. (Find out how factors such as a country's age group can affect your investments in Demographic Trends And The Implications For Investments.)
The Battle for Resources and Raw Materials
The combination of population and economic growth in the "tiger" regions (Southeast Asia) must use up resources, which is likely to increase demand - and prices - for energy, food, water and just about anything else needed to keep these young economic powerhouses operating.
Any well-constructed and managed portfolio will take advantage of such trends. This could be accomplished by putting some money into resource-based investments and funds.
Climatic change and carbon dioxide emissions are ugly problems that seem to be with us to stay. If the polar ice caps continue to melt as many scientists predict, sea levels are likely to rise and storms may increase in frequency and severity. Although these events present a serious global challenge, investing in the solutions can be both philanthropic and lucrative. (To learn more, read Evaluating Green Equity Investments and Top 10 Green Industries.)
No one really knows exactly how the climatic situation will develop, and it is important not to assume either that a total disaster is pending or that everything will be just fine. In terms of investment, however, it is clear that how environmental issues are handled by companies will impact the future. Putting this simply, firms, products and services that are environmentally friendly, should, other things being equal, present better opportunities than polluters. And products providing wind or solar power, or other forms of alternative energy are likely to have a bright future. (For more insight, see For Companies, Green Is The New Black and Five Companies Leading The Green Charge.)
The 21st Century Is Asiatic
Naisbitt advised people to forget about countries and focus on regions. Indeed, many investors now work more in terms of international industry sectors, such as steel or pharmaceuticals, rather than countries.
Countries will still remain important, but investors may find it prudent to invest more than before in areas that are growing particularly rapidly. Alternatively, American companies that themselves have become more globalized, may benefit.
Further Trends: Mega and Not So Mega
There is no shortage of other trends that will influence our lives - and our money. For instance, international terrorism acts cost money to counter. Billions have been spent in this area and, unfortunately, it appears to be a trend that will not be going away any time soon.
Values also evolve over time. For instance, in 2007, many technology publications indicated that people are developing a desire for simplicity. As such, products and services that cater to such needs and preferences may become important. As technology becomes an essential part of communication so does making it more user friendly. After all, many people are driven to distraction by having to learn complicated new software applications and how to work intricate new gadgets every few months.
Mobility is also likely to continue to advance and progress and goods and services, as well as people, will move around.
And then there are mutating life models, an evolving working world and consumer patterns, microtechnology and also an increasing number of derivatives in the financial world. All in all, there are trends galore.
How Reliably Can One Predict These Trends?
Despite the above, the future cannot be predicted accurately, at least not in all respects. There are so many considerations, elements and unknowns that one cannot take anything for granted. Nonetheless, it is necessary to be aware of trends and take them into account in your investment strategy. And - if you look closely - it's possible to get a pretty good idea of how many will develop.
What is less certain than the trends themselves is how exactly they will develop and interact with one another. Yet, it is certainly possible to draw some sensible conclusions about likely impacts on investment and what best to do with one's money. Truly reliable and accurate predictions, on which you can put the proverbial bottom dollar, are not in the cards. The prudent approach is to keep as informed as possible on the various trends and be guided by your knowledge - within the constraints of the standard wisdom on investment. (For more on investing using a more traditional approach, check out Advanced Financial Statement Analysis.)
The world is evolving constantly and partly in the form of various mega, middling and minor trends. While it is essential to be aware of and act on these trends, the sheer number of them and their complex and ever-changing interaction prevents any analysis from being smooth sailing. The trends can be your friends, but which ones and to what extent?
The bottom line is that you should bear the trend landscape in mind, but don't take wild risks on a future that ultimately remains uncertain.
(To read more on this topic, see Taking Global Macro Trends To The Bank.)