This is a stock price chart of Nike Inc. from the 1980s to now.

Source: Bloomberg

And here is one of McDonald’s:

Source: Bloomberg

What do they have in common?

These were 2 (of many) companies that rode the boomer wave of consumerism and fast food. Presumably why they succeeded was due to a couple of other reasons as well – good management, sound strategy, sustainable competitive edge.

But riding the right wave at the right time gave them a higher probability to succeed.

Where Is Society Heading?

By zooming out and maintaining a high level perspective of what is happening in today’s world, we can always get a better idea of industries that are positioned for success rather than picking random names out of a hat, or whatever happens to be the media flavor of the month.

Today I can say with 150% certainty that we are currently trending towards an increase in data consumption.

What this calls for are sub-trends with relation to niches like device innovation, Internet infrastructure and content management. Obviously this isn’t an exhaustive list, but it gives an idea of how to go about thinking of the trend across the verticals and laterals.

You can then choose to go deeper into each niche or go broad across the different themes (eg. Amazon plays laterally across the ecommerce niche – merchant ecosystems, payments, fulfilment, as well as into verticals like cloud infrastructure and the like)

Some other current trends we can predict with relatively high certainty include:

  • Digitalization of businesses
  • Aging population in developed countries
  • Lower barriers to entry to start businesses (ie. capital required)
  • Social media as a part of our lives
  • Dual Income Household
  • Growing importance of clean energy
  • Ad infinitum

Each of these general trends can then be branched out into sub-trends and sub-divided.

Any idea what’s in vogue these days? (Photo credit: McQueen)

You can also think about them in terms of value chains ie. what is required for upstream/downstream production of these products and services.

For example, an aging population trends will result in:

Upstream (further from end users):

  • Medical advancements
  • Insurance needs
  • Necessities for seniors (eg. adult diapers)

Downstream (nearer end users):

  • Nursing homes and staff
  • Software applications that seek to narrow distances between loved ones

How to Invest into Themes

“But it still doesn’t tell me which stock to buy!” I hear you cry.

Luckily for you, we have just the solution. Instead of choosing a single stock (preferably a market leader), you now have the luxury to invest across the market into thematic ETFs. Thematic indices are excellent for a simple yet effective way to participate in a trend, if you don’t want to crunch the numbers and keep track of things like P/E or Debt ratios.

A fine example that’s all the rage in recent times – Cathie Woods ARK funds. You can buy it directly off the exchange as you would a normal stock.

If you’re a cheap ass you could just replicate or cherry pick a few of the names inside and structure your own portfolio.

A fantastic advantage in doing so is leveraging off the due diligence work (presumably done well) of a superstar portfolio management team.

The Trend is Your Friend

You can diversify risk across names within a particular niche/theme if you prefer not to have concentration risk. As a business becomes a market leader in the industry, you can then ride the trend and allocate more resources to a particular name. That is how winners are made as they increase their market share bit by bit.

Life is easy when you ride the trend (Photo credit: BBC)

Information today is becoming more and more readily available (at the same time, its value is going down), and the media hypes up whatever that is good publicity for them and not necessarily good for you (Gamestop and AMC anyone?).

You still need to separate the weed from the chaff using your payment terms – ie. attention and trust capital. Add a little common sense to that, and you will see that it’s actually not that hard to identify sectors that are up and coming.

And that mi amigo, is the secret to picking the right stocks at the right time.

P.S. Nothing in this post is to be considered legal or financial advice. All of the writing here is meant for information and entertainment purposes, so DYOR and make decisions based on your own beliefs.

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