Megatrends in Stock Investments

Only a handful of changes in your stock portfolio over the past four decades would have made you a tremendously rich investor. Had you put your money into natural resources (such as gold, silver, and oil) at the beginning of the 1970s and let them stay put until the end of the decade, you would have made a fortune.

Then, had you cashed in and switched to Japanese stocks in 1980 and held them for the rest of the decade, you would have made another fortune. Then, had you switched in 1990 to U.S. stocks for the entire decade, you would have made yet another fortune. What if you had cashed in your stocks in 2000? For starters, you would have avoided huge losses in the down bear market.

What is a megatrend? A megatrend is a larger-than-life trend, a development that affects millions socially and economically, either now or in the near future. This change may be demographic, political, or technological (or some combination thereof), which, in turn, has a major economic impact. Stock investors take note because some companies can end up being big winners (or losers) as these megatrends unfold.

How about being bullish? During 2000–2006, real estate was in hyperactive bullish mode until the housing bubble popped and the devastation hit during 2007–2009. Precious metals and most commodities were the enduring bull market for 2000–2010. But that’s all history now . . . what looks like a strong bull market for the second decade of the 21st century?

By and large, this decade will be a time of both great opportunity and great peril. The U.S. economy is still in deep trouble with high unemployment, poor growth, and tremendous debt. Investors will have to be more cautious than ever, but opportunities for gains will be there. Here are some challenges for investors:

  • Stubbornly high unemployment

  • Rising inflation (as the dollar and other currencies are increased in supply)

  • International conflict (ranging from the middle east to surprises across the globe)

  • A sluggish or recessionary domestic economy

  • Rising prices for natural resources (grains, metals, energy, lumber, and so on)

However, this decade has more to consider, including the following:

  • Debt, debt, and more debt ($55 trillion as of September 2012 — more than three and a half times the U.S. gross domestic product [GDP] total of $14 trillion). The national debt for the federal government alone has exceeded $16 trillion as of October 2012! The U.S. is now the world’s largest debtor nation.

  • The U.S. as a major importer (versus being an exporter in the ’70s)

  • China, Russia, Brazil, and India as major economic competitors (and consumers of resources)

  • Domestic instability due to the financial difficulties (and bankruptcies) of many municipalities and even some states (such as California)

  • More than 700 trillion dollars’ worth of derivatives (25 times larger than the world’s total GDP)! Many of these derivatives, which are complicated investment vehicles, are arcane and ultra-risky.

  • Total Social Security and Medicare liabilities (along with state and local pension liabilities) that are now projected to exceed $100 trillion. (Rising costs started in 2008 as the oldest baby boomers started to retire at age 62, and escalated in 2011 and beyond as more and more folks turned 65.)

This list isn’t comprehensive due to space limitations. (Yikes! What’s next? Finding out that your blind date has flesh-eating bacteria?!) Anyway, those preceding points are enough to make you understand that this investing environment has changed dramatically, and you need to refocus your overall game plan to keep your money growing. It also makes you want to race off to Gilligan’s island!

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