I shared some drinks tonight with a good friend. We had a great time talking about all sorts of topics. One topic sticks in my mind that I’ll share with you tonight–future investment opportunities. My friend and I talked about anticipating the future. He mentioned that the energy industry will continue to be hot because price of oil will continue its historic highs for the foreseeable future. He is correct. I pointed out that a global depression would suppress the price of a barrel of oil. Unlikely as that is, it is a possibility. A more likely scenerio however is that the price of oil will hover between $50 and $70 per barrel for the foreseeable future. I talked about the rise of India and that the savvy investor will look beyond China, currently the world’s hottest market, towards India. India, according to a BusinessWeek special report, is projected to surpassed China’s GDP in the late 21st century. China is hot now, but public Indian companies generally offer better performance than their Chinese counterparts. As someone married to a wife from China, it may smack of heresay to say that you should keep your eye on India over China. However, with so many eyes on China right now, it would be wiser to be contrarian and look forward to the day when India will be just as hot, if not hotter, than China.
If you could look into a proverbial crystal ball and anticipate future economic trends, getting an early lead on investing opportunities, what would you see? Here are my thoughts. Note that I did not include the Internet, nor did I include biotechnology. While both industries still hold great promise, they represent current trends in technology rather than future trends.
- Energy: Energy demand will sustain high energy prices with no viable mass-produced alternative to traditional fossil for at least 20 years. In the near-term, the best investment opportunities may be in traditional energy exploration, such as drilling companies. In the longer term, alternative energy producers will be a good investment.
- India: While India has often been mentioned along with China as an upcoming economic power, India may have even greater economy potential in the next 30 years. Indian companies offer better investment return than Chinese company, and foreign direct investment (FDI) in India has lagged FDI in China. It won’t for long.
- Nanotechnology: Nanotechnology is technology developed on a molecular scale. Within 20 years, nanotechnology will be a viable industry that will likely revolutionize materials technology. It may very well follow the rise of the Internet as the next great frontier. Unfortunately, it is currently a risky area with so few public companies and available.
- Decentralized media: The Web will profoundly shape journalism and media. Currently a wild west morphing in phenomena such as eBay, e-networking, and the blogosphere, a future investment opportunity lies with those companies such as Technorati and eBay that can capitalize on these phenomena, just as Google dominates search. Look for this trend to develop in the next five years.
- Microcredit: Microcredit, or extending small loans to individuals in developing countries, will become big business over the next two decades as developing countries such as India and Indonesia enter periods of sustained economic expansion. Banks and financial institutions will benefit.
- United States of America: Americans are at their best when they are paranoid. As Andy Groves likes to say, "Only the paranoid survive." Whether it’s Hurricane Katrina or the rise of China as a world power or the trade deficit, the tendency to dismiss the United States seems to be oversubscribed. It seems to happen with the perceived rise of a rival state. Yet since its inception, the U.S. has survived many crises and has thrived, even in a multi-polar world. Over the long term, invest in small- and mid-cap U.S. stocks, many of which will deliver excellent returns.
- RFID: Within the next decade, RFID (radio frequency identification) chips will begin to replace bar coding as a means of tracking inventory. These microchips will allow unprecedented tracking of inventory, taking inventory management to a level not yet seen. Companies that develop RFID or capitalize on its benefits early will have advantages over companies that do not.
- Aging: The world is getting aging at a rapid pace. In the U.S., Baby Boomers are turning 60 years old. Japan, Korea, and Europe face ever graying populations. Companies that assist this growing, aging population, including healthcare, leisure companies, and retirement service companies, will benefit substantially from the aging population boom over the next two decades.
- Alternative investment vehicles: Equities, bonds, real estate, and venture capital have all matured. Savvy investors are looking for other ways to invest. There is a good reason why alternative investment vehicles such as hedge funds, exchange-traded funds, and gold are so popular right now–investors want to diversify. The recent successful launch of several gold funds leads me to believe that in the future other commodity funds will launch with great success. Possible funds could include timber funds, alternative metal funds (silver/platinum), and water funds. Imagine holding 5% timber in your investment portfolio, which you purchased through your broker. In the not-so-distant future, you will have that option.
I would be remiss if I did not mention that I’m sorry to hear that management guru Peter Drucker recently passed away. He was a giant in the field of management and will be missed. As a student of management, I appreciate his teachings, although I did not always agree with them. He left behind a legacy that should be sustained by his foundation, the Leader to Leader Institute.