Stay calm in testing times and invest in future trends
I have been watching the stock market for a long time and for all those years it has been in a semi-permanent state of fright. The terrors that have beset the markets in recent times are simply a reflection of the nervous collapse it induces on itself when it wakes up one day and asks if it has been a part of a one-way ill-considered bet.
Once again the market is facing a test of faith. The justifications given include low interest rates and benign economic conditions.
However, central banks are slowly unwinding their quantitative easing programmes, closely monitoring inflation and watching the changing political environment. Students of similar bull markets in 1927, 1946, 1962 and 1987 see comparisons between today and these periods.
However, it is easy to find similarities when you go looking for them. Unfortunately, no matter how loud and confident commentators shout as to where the market is going, there is no way to accurately predict its future direction.
Today we live in a different business environment. It is an era of cyber currencies, technology disruption of traditional industries, global dominance by the tech giants like Facebook, Amazon, Apple, Netflix and Google. In addition, changes are occurring so fast that governments and regulators are chasing to catch up.
This was not the case in the past, so comparisons are difficult. The only certainty is the death of the bull market.
Today's investors pay a lot of attention to the short-term but it is probably wise to ignore the headlines and look to the bigger picture. Longer-term investments require patience. Can investors tap into longer-term changes that don't rely on the bull market and still deliver profits? Can these trends resist the driving forces of Wall Street and the City of London? This is a difficult call because any market correction will have an impact on all companies. However, some experts say that trends like electric and self-driving cars, older society and industrial automation, may be best able to resist a market correction.
Electric/self-driving cars are filling a lot of column inches these days. One way to catch the trend is to invest in the auto producers you think will be the winners like GM, VW and Toyota. A better bet for investors might be to consider component companies like the Swedish sensor company Autoliv, parts suppliers Valeo or Schaeffler, and chip maker Nvidia. At this moment there are no decent exchange traded funds (ETF) for self-driving cars, but remember if you wait until the next decade to invest, it may be too late.
Another trend worth noting is the ageing of society. People forget that this is happening not just in Europe but also in China, the US and Asia Pacific. This trend is driven by advances in modern medicine, leading to a higher life expectancy. Pharma companies like diabetes experts Sanofi and Novo Nordisk, are geared for a business explosion in China. Global giants Roche, Novartis and Merck, and medical device company Stryker, are worthwhile bets particularly with their broad portfolios and global reach. However, the ballooning cost of US healthcare (the largest market) which, according to Warren Buffett, is "like a tapeworm on the US economy", is of concern. It has already attracted the attention of the great disruptor, Amazon. The next generation of medicine like Gilead cannot be ignored. An alternative way of investing would be to buy an ETF (Exchange-Traded Fund).
Experts differ as to the impact that industrial automation and robots will have on industry and job losses. Whatever about job losses, an investor must embrace the trend. Some of the big names in this area worth watching are Rockwell Automation, ABB, Kuka and Fanuc. For those looking for a more diversified approach, consideration could be given to a robot and automation ETF like Robo.
This ETF has 90 stocks around the world and includes mid and small cap companies.
Following last week's mini crash (sorry, correction), it is best to remain calm and to invest in future trends. However, this year will not be as smooth as last year.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.