Where to Invest Over the Next Decade

You know that feeling when a stock you hold moves down sharply?

I know I sure do.

That feeling of panic in the back of your mind. It never completely goes away. Even with experience.

There’s nothing worse than logging into your broker account and seeing a wall of red.

And that’s why you should spare a thought for poor Mark Zuckerberg who dropped US$3.2 billion on Monday. This was according to Bloomberg’s Billionaire’s Index. An index of the wealthiest people in the world.

But before you go messaging him on Facebook with a ‘sad face’ emoji, bear in mind he’s still worth a cool US$69.3 billion. A comfortable fifth place in the rich list.

Zuckerberg and his fellow technology gurus are the most represented group of billionaires on the index. 59 out of the top 100 to be exact. Their combined US$942 billion is more than any other industry.

That’s no surprise to be honest.

By any measure technology is the place to have parked your money for the past 10 years.

Check out the chart below.

It shows the performance of the tech index — the Nasdaq (blue) — versus the S&P 500 Index of the top 500 US stocks (green). And also against the Australian All Ordinaries index (light blue).

It doesn’t look great from an Australian perspective.

Nasdaq vs S&P 500 vs Australian All Ordinaries Index 27-09-17
Source: Incredible Charts
[Click to open new window]

Since 2009, the tech index has returned more than five times your money. The general US index has returned just over three times. And the Australian market has barely made anything!

Clearly government policy of low interest rates and economic stimulus has found its way into the speculative technology sector more than anywhere else. Besides maybe Australian property.

But you can’t invest with hindsight.

The key question right now for investors is what about the next 10 years?

Let me give you some ideas…

The quiet achiever

This is an exciting economic story, which is floating under the radar in my opinion.

It could be another China boom for Australia.

You see the economies of China and India were once very similar. But then China streaked ahead.

In 1978, China began a long process of economic reform that eventually led to the high growth rates it has achieved early this century.

India started similar economic reforms. But a full 12 years later.

But now all the signs are that India’s time is coming.

Growth rates will average around 8% over the next 10 years, if the economic consensus is on the money.

Its population will probably be even bigger than China’s by 2022. And 50% of its population is below the age of 25.

This is a crucial fact.

Unlike China and many western countries who are facing the problems of an ageing population, India will benefit from youthful productivity, ambition and consumption.

And like China before it, the sheer size of its population will create opportunities for countries like Australia.

To my mind, this means a resurgence in Australia’s resources sector as well as opportunities in agriculture, education and tourism.

Tech looks bubbly for now

Personally, I feel the tech sector is due for a short-term correction. It’s not a total bubble. But it is bubbly.

The likes of Amazon [NASDAQ:AMZN] and Netflix [NASDAQ:NFLX] are great companies. But they are still considered to be growth stocks, and are priced as such.

Like any growth stock, there comes a time to deliver profits. And I feel that investor patience is starting to wear a bit thin on that front. A 10-year bull market will do that in a sector.

Any economic shock will hit this sector hardest. I’m basing that purely on the principle that the bigger they are, the harder they fall. But I think it makes sense.

Hype is the first casualty of fear.

Generally, I am bullish tech over the next decade though.

The harder thing will be picking winners.

It’s in the nature of the technology business for the leaders to be overtaken. Bill Gates — incidentally number one in the Bloomberg Billionaire’s Index — did that to IBM in the 1970s. And if anything, technology moves even faster today.

Blockchain technology is going to change the face of many tech businesses.

Whether the existing leaders manage to integrate it and maintain their dominance is going to be interesting to watch. I think it will be the great disrupter of the next decade.

Find and invest in the big trends

No one has a crystal ball into the future.

And some exciting big trends can slowly fade away without fulfilling their initial promise.

For example, I was convinced in 2003 that nuclear power was going to be a big deal, and stocks like Paladin [ASX:PDN] were the long term place to be.

I won’t bore you with the reasoning. Suffice to say I was badly wrong. And I will be again, no doubt. No one can be right all the time.

But thinking about big trends and who will benefit from them is crucial to making long term investment decisions.

The trick, as I later found out, was to combine big thinking with the concept of big money flow. In other words, letting the professional investors validate your thinking, rather than swimming against the tide and losing money.

So, get thinking and analysing. But stay humble and open to counter ideas. And if you ever get to the stage where you can drop $3.2 billion in a day, I’d venture one of your own big ideas has paid off.

Good investing,

Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia