Seeing the Future

So here I am, 46 years old, trying to figure out how to invest for the “future.” I exercise and eat right, so (hopefully) for me the “future” means at least 40 more years, maybe even 50 (what can I say - I'm an optimist). The crystal ball gets pretty foggy looking out that far, but a few things seem obvious, and we can draw some conclusions based on these observations that (again hopefully) will give some insight on how to invest for this “future” that we face. I begin here with a summary of my conclusions, followed by the more detailed analysis (for the hard core finance and economics geeks out there – check out the subsequent post “Observing Today to See Tomorrow”) that led me to these conclusions.

The bottom line is this: The next decade or even decades will be difficult times for the US and Western Europe in a macro sense, as many factors will create headwinds against economic growth. The best long-term investment strategy will be to invest in companies that take advantage of the themes summarized below, but that also have limited vulnerability to the hazards that follow.

Investment Themes:

· People living longer
· People working to an older age in developed nations
· Older workers making up a bigger percentage of the workforce in developed nations
· Immigration into the US
· Immigration from rural to urban areas in developing nations
· Increasing affluence of populations in developing nations
· Technology for work (to increase productivity)
· Technology for play (digital lifestyle)
· Technology for alternative energy
· Dollar devaluation vs. Asian currencies

Investment Hazards:

· Rising interest rates
· Rising tax rates
· Inflation or deflation, but no certainty as to which
· All of the above, plus global deleveraging, creating “headwinds” for economic growth in the US and Western Europe
· General market PE multiple compression
· Another financial market meltdown (a la 2008-2009)
· The “normal” risks of investing in developing nations that do not have seasoned financial markets, stable currencies, fair and transparent legal systems, or even stable democratic governments
· Dollar devaluation vs. Asian currencies

Investing Game Plan:

· Look for solid companies that have exposure to the above themes (e.g. aging, technology, emerging markets, etc.), preferably companies based and traded in the US or Western Europe for their legal systems, property rights, established financial markets and political stability.
· Look for companies that can adapt pricing and expense levels to both inflation and deflation.
· Avoid financial stocks until meaningful reforms are put in place to prevent a recurrence of 2008-2009’s market meltdown.
· Avoid stocks in the long run that will be hurt by higher interest rates
· Do not overpay – wait for corrections to specific stocks or the market overall to find entry points at PE multiples that are less expensive by historical standards.