Read this Periscope to learn 10 trends we see over the next 10 years. I wrote this before the Covid-19 Pandemic, and I’ve been holding off sending it because I wanted to see if the pandemic changed them. But it did not. This time, it is not different after all…Send me a note or call your financial advisor to learn more!
“The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create.” Alex Umansky
We assuredly live in uncertain times. But, as I’ll conclude this Periscope, we’ve lived through worse, although we easily forget them. Let’s take a look at a meaningful period of time for our equity investments—not this week, month or year, but the next decade. Let’s look at the trends. Let’s learn about the thinking of a handful of our investment managers as they allocate our life savings.
The retail revolution: Ecommerce is booming in America but has still just scratched the surface of its potential. It could become everything we buy. Furthermore, it’s booming in China and the rest of the world, and this trend has just begun, with a lot of upside potential.
Union of healthcare and technology: an example may suffice. As many of you know, we had a medical emergency in the Frank family recently. Three weeks after receiving two titanium hips, our patient is walking (just a few steps). Wow! Minimally-invasive surgery is here, now, and the infinite possibilities of healthcare technology have just begun to provide us benefits. The upside is good.
Software-as-a-Service (SaaS) will continue to become normal. Already, we subscribe to many things we used to buy. This trend—towards renting what we use—is expanding in countless ways. Companies love the recurring revenues and investors love the growth and income possibilities.
Data-driven decision making will make huge headway across the world economies. From the US military to the world’s largest organizations, down to our local wealth management firm and the charities we support, better data enables better decisions and improves results. The more uncertain we feel, the more data we want, and the upside for companies and their clients is huge.
The limits of globalization, our first negative trend, are being reached. Not long ago, complex supply chains for global companies were the norm. For reasons both apparent (US trade policy) and opaque, this is a new and changing trend toward regionalization. Over the next ten years, I expect big changes in the global companies and new upstart companies with more efficient processes to improve our lives.
The limits of US military power are being reached now, today. This is a headwind (negative) trend. USA is likely to have less of an impact on the world’s security situation. Most recently, the US has withdrawn and the President along with several candidates has expressed a desire to continue to withdraw from numerous international situations. I believe this trend will continue. Consequently, this regionalization may increase the unpredictability of international conflicts.
Cyber fragmentation is a trend best explained by a few examples. Countries around the world are shutting down their internet, for political, security or other reasons. The US government fears Huawei Technologies. Globalization brought us dangerous interdependence, and the next trend portends proprietary technologies with less efficient communications between rival nation-states. Again, this trend is a headwind to economic progress.
Technology is a powerful trend that will continue to improve at an ever-increasing pace the information systems, energy sector, manufacturing and the space race. These are wonderful tailwinds which will improve the world.
Climate issues will increasingly affect more and more businesses. I believe great improvement are possible, but my guess is that we will not be beyond hydrocarbons in ten years. We will still face many of the same challenges a decade from now as we do today, but I do not believe that the most dire predictions of today will not come true. Instead, I am optimistic.
Demographics of the Northern hemisphere (old) and Southern hemisphere (young) countries will slowly increase pressure on the wealthy nations and provide opportunities for the poorer countries. This will likely continue to reduce poverty, increase nutrition and healthcare and wealth. On the other hand, this trend will increase societal expectations for jobs, housing, education and government services. In response, governments may become even more nationalist, and the potential for more conflicts may increase.
Let me conclude with an extended quote from Ron Baron that illustrates today’s quagmire, and our wonderful future:
“Who could have foreseen that the young people covered in mud at Woodstock were Baby Boomers who would propel our economy’s growth for the next 50 years?”
“When Senator Robert F. Kennedy campaigned for President in 1968, America’s GDP was $850 billion. It is now $21.3 trillion! 25 times higher! The Dow Jones Industrial Average was then 1000. It is now 26,000! 26 times higher! If you had invested then, you would have created financial security for your family… All you needed was faith in America!!!”
We think our economy and stock market could again increase 25 times during the next 50 years… That’s 6.5% per year…the same growth rate experienced during the last 50 years!!!! That means Dow Jones 650,000 and U.S. GDP $500 trillion in 2069!!! (2) That’s what we mean by compounding…of course, in 2069 I’ll be 126 years old. So, if you want to send congrats, please email me at Baronfunds.com! They will know where I am…” -Ron Baron
(1) Touchstone Sands Capital Institutional Growth Fund
(2) Baron Global Advantage Fund