SMART INVESTING MEANS OBSERVING TRENDS

Change is constant and inevitable.  Winter changes into spring, night changes into day, and even the largest boulders are eventually reduced to sand.  Death, taxes, and change.  Those are your guarantees, my friend.


In the world of business and investing, when a simple change evolves from a temporary detour into a sustainable new direction that’s backed by fundamentals, a new trend emerges.  And when a new trend alters a familiar course or practice, the change can be very disruptive.  Entire industries can be impacted, cultural ideals are often reformed, and massive transfers of wealth can occur.  “Paradigm shift” was a popular buzzword in the late 1990s that described trend changes of this magnitude.

Here are some legitimate trends that have occurred within the last few decades that are supported by current consumer buying habits:

  • The move from postal mail to email
  • The move from gas-guzzling trucks and SUVs to hybrids
  • The move from video cassettes to streaming content
  • The move from “engineered” foods to organic foods
  • The move from print maps to GPS navigation
  • The move from catalog shopping to e-commerce
  • The move from personal pagers to cell phones
Pagers... remember these things?

Consider this:  what if someone tried to sell you a pager today?  It’s an absurd thought, right?  Totally comical.  Imagine walking into the mall this week and there’s some dude sitting at a kiosk with a couple dozen pagers on display in a glass case.  You’d probably shake your head and smirk as you walk by.

Well, back in 1993, that dude was sitting pretty.  Business was good if you were in the pager business.  But today, not so much.  What happened?  The trend changed in a big way.  Consumers started redirecting their purchases to a new mobile communication device called a cell phone.  Can you think of a single person over the age of 15 that doesn’t own a cell phone or smart phone today?  Pretty amazing stuff.

Yes, change used to be slower and more forgiving.  But today, things are moving so fast that if you aren’t adapting to new trends quickly, you risk being rendered obsolete.  The post office is learning this lesson the hard way…

THE EFFECTS OF A CHANGING TREND

A recent press release about the United States Postal Service (USPS) highlighted the dramatic effects of changing trends.  With the advent and increasing prevalence of email over the last few decades, the USPS has been experiencing a precipitous decline in postal mailing volume.  At the point of writing this now, they’re losing money at the rate of $10 billion per year (ouch!).  A cash burn rate like that is unsustainable; they’re hemorrhaging money every month.

Truth be told, I pay nearly all of my bills online.  If I need to contact someone, I send an email, reach out to them through social media, send a text message, or I simply call them.  Unless it’s a special occasion or a business transaction, I’m probably not going to mail you a letter.  So, when you’ve got billions of dollars in unfunded liabilities in the form of pension obligations, massive fixed costs, and a declining source of revenue, that’s a challenging operating environment even for the most savvy business team.  The USPS has an uphill battle to fight.

A CONSTANT STRUGGLE FOR TECH

This is a constant struggle for companies in the technology sector – they have to perpetually adapt to the trend and innovate, or they risk obsolescence.  Agility and nimbleness are difficult traits for large companies to adopt.  Blackberry didn’t adapt quickly enough to changes in the cell phone space, and it ended up losing market share to Apple and Samsung.  Media companies like Yellow Pages didn’t adapt quickly enough to the Internet as an emerging advertising medium, and they got hammered.  Honestly, when was the last time you opened up a Yellow Pages?  I know of several large companies that have elected to stop advertising in phone directories entirely.

Do you remember Tower Records?  What about Blockbuster Video?  Netscape?  Circuit City?  Borders?  Trends are a moving target, and when you couple that with a constantly evolving technology landscape and a fad-chasing consumer, companies are facing a daunting task.

INVESTORS ARE POISED TO BENEFIT

As independent investors, we have a tremendous amount of autonomy and flexibility in our approach.   As trends emerge and evolve, we can simple rotate in and out of them, while prudently limiting our downside risk.


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Additionally, some industries and investments have less exposure to trends and are thus more stable in nature.  For example, housing is a basic human need in a civilized society.  I’d also put water, electricity, food, energy, and other essential services into that category.  These industries will occasionally face the need for adaptation, but will rarely face the risk of obsolescence.  And for that reason, essential services have historically been a good place for investment capital.

Now, if you’re going to invest in sectors and companies that have more exposure to consumer trends, then you need to apply the appropriate strategies in order to protect yourself.  For more information on how to do this properly so you can guard your money while still earning ample returns, check out Chapter 11 of
The Pay Me Plan home study course – the entire chapter is dedicated to minimizing your investment risk.

Trends can and will change, folks.  And certain fields like technology, entertainment, and fashion feel the winds of change more than others.  Nevertheless, with change comes opportunity for those that can adapt and embrace it.

Those are my thoughts. Feel free to share some of yours below. Thanks for reading and as always, make it a great day.

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Gerald Larue thumbnail pictureThis post is by Gerald Larue, the founder of DEMOS Financial, an investment training, education, and financial research company. DEMOS Financial is a California limited liability company that specializes in helping novice and intermediate investors with strategies, approaches, and techniques for generating investment income and putting their money to work for them. The Pay Me Plan home study course was created and produced by DEMOS Financial.


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