How to Invest in Human Need Stocks
In 2011, the world population passed another milestone — 7 billion! That can be a huge consideration when pondering your next stock investments. Think of all the mouths to feed . . . think food, water, clothing, shelter, and so on. Logical investing strategies based on demographics such as population tend to be solid winners.
An increasing total world population is only part of the picture. Think of the underlying sub-demographics. The growth of the middle class in some countries will have a major impact on demand for those things I refer to as human need investments. When you think of human need, you can think of commodities, energy, food, and water.
As long as most (or even all) of your portfolio is geared toward those goods and services that the public will need no matter how good or bad the economy is, you should do well in the long run. Remember, not want, but need — it’s a safer bet in the coming years.
Two countries that figure to have a mega-impact on the world in the near future are China and India. In the past ten years, these countries have put their economies on the fast track. Consider the following:
They’ve generally turned away from socialism and a command economy and have turned to a free market or more capitalistic system.
Industrialization, privatization, and profit incentives have ignited tremendous booms in these countries.
Both nations’ populations have continued to grow, with more than 3 billion people combined.
What do these facts mean for stock investors? Somebody has to sell them what they need. China, for example, has a voracious appetite for natural resources like building materials, copper, grain, and so on. Companies that have provided these needed goods and services do very well.
Of course, China and India are only a part of the world’s emerging markets, but they’re certainly the most important to Americans in terms of economic impact. They are indeed megatrends that will either help or hurt your portfolio. In the coming years, demand will likely continue to be strong, and investors will see the obvious positive implications for solid companies that meet this demand.
Food and water
When the economy is tough and uncertain, it’s a good idea to stick to profitable companies that sell stuff that people will buy no matter how good or bad the economy is. Food and water — you can’t get more basic than that! This is a reference to human need that couldn’t get more intimate. By sheer dint of demographics — more people! — food and water have good built-in demand.
Say you bought into the S&P 500 on January 1, 2008, and you also bought stocks in food and beverage companies. An easy way to reflect both investments is to use ETF proxys for each. Say that for the S&P 500, you bought the ETF SPY, and you got the food and beverage ETF PBJ. How did they fare from the beginning of 2008 to today (October 2012)?
|ETF||January 1, 2008||October 31, 2012||Gain/Loss|
|S&P 500 (SPY)||$132.15||$141.35 *||Up 6.9%|
|Food/Bev. (PBJ)||$15.76||$19.75 *||Up 25.3 %|
|*Price is adjusted for dividends and stock splits.|
The table clearly shows that human-need investing (represented by the food & beverage ETF PBJ) outdid the generic S&P 500 (represented by the ETF SPY) with a gain of 25.3 percent versus SPY’s 6.9 percent gain. Investing in human need has fared well in recent years, and considering how the economy is unfolding during 2013–2014, it should have a prominent place in today’s stock portfolio.