I am hooked on behavioural psychology.
Why we do things and how our minds work is fascinating stuff. For example, once we own something, we perceive it as having more value.
You can see this in children and adults alike. Taking away their toys, children or adult, usually doesn’t go down very well.
And it’s not just humans that react this way. Even a dog will growl when you try to take its bone.
Put in a stock market context, stocks might seem more valuable upon purchase. You’ve spent time researching and you’ve made the commitment of buying, after which the stock becomes yours.
When it comes time to give it up, it’s not always easy. You might hold onto a losing position far longer than you should. Or you might not sell when prices reach extremely lucrative highs.
We, as humans, also aren’t too happy about big changes. Change means something different. And something different can be fraught with risk and uncertainty.
But it’s an enviable part of life. To move forward change is necessary.
Yet America doesn’t see it that way.
Governments work on bad incentives
What is a government anyway?
It’s just a group of people like you and me. But unlike you and me, the government doesn’t live or die by market forces.
For example, you and I learn skills in demand. We do this so we can earn money to pay for food, shelter and a few extra items along the way.
The government lives and dies by votes. They rely on decisions, which usually end up being a popularity contest. So long as they can remain popular it doesn’t matter how much money they lose.
This is one of many reasons why I believe we should limit governmental powers. Behind most of the decisions they make and the things they do is the motivation of more votes.
It’s why when Donald Trump said he’ll reduce the trade deficit and make China pay, Americans loved it. And who doesn’t want to make that terrible, controlling Chinese government pay?
But in hamstringing China, the US is actually hamstringing themselves. How do you think China or India grew so fast in such a short time?
They benefited from trade with more advanced countries like the US. And as China and India become more advanced, the US will too enjoy benefits.
A futile effort
Keeping China or India down is ‘futile’, Andrew Robb said.
Robb is the former trade minister for Australia. He’s met many times with officials from China and India. And in a recent speech Robb said China and India are re-emerging as the political and economic centres of gravity in the world.
It was a title they once held. And soon, it’s one they could reclaim, sharing it with the US. ‘Unfortunately, the United States appears yet to accept this inevitability with both sides of the political aisle in Washington endlessly focusing on ‘containment’ of China – a futile and counterproductive approach in my view,’ Robb said.
But if the US won’t wake up to this reality, maybe you will.
To profit from India and China’s climb it’s important to know what’s driving their growth.
I’ve mentioned before, economic growth is the product of hours worked and productivity. Technology greatly improves the latter.
So to continue their growing trends China and India are going to do something they haven’t done before. Both countries are going to rapidly adopt, invent and foster technology.
No drilling for oil or smelting steel. China and India are going to roll out digital payment systems, smartphones, connectivity services and move up the manufacturing value chain.
‘The long range economic potential and societal impact of new technology is one of the few certainties in the decades ahead. Technology companies continue to become a bigger percentage of the world economy. They have overtaken Oil and Gas companies to become the largest public companies in the world, the private market is bursting with billion dollar unicorn valuations unseen before in history, and many non-technological industries are either dying at its hands or becoming one with it.’
This doesn’t mean you should only invest in tech. But it will become a large part of India’s, China’s and the US’ future.
PS: How Aussie investors could potentially win big when China takes on Silicon Valley — Download your free report here now.
For investors this is different from the norm. Years ago, a wonderful business was one that consumed a lot of cash but spat more back out.
Now the wonderful business takes no cash and holds very little assets and still spits out tons of cash. Yet you could argue picking tech winners has become harder.
Studying tangible assets and earnings is still important. But more emphasis is now given to intangibles. It is the intangibles that make Amazon, Alibaba, Google and Facebook so profitable.
‘The first five information technology waves of Defence, Integrated Circuits, the Personal Computer, the Internet and Social Media, have dramatically transformed society. But the waves that are coming in the next 20 years, will make what’s come to pass look like a child’s surfing competition.
‘Self-Driving Cars, Artificial Intelligence, Robotics and Virtual Reality are just a few of the fast approaching societally transformative technologies coming in the next wave.
‘All of these technologies portend a future with great increases in productivity and prosperity, but also some of the biggest employment dislocations in human history.’
Editor, Money Morning