Why I am skeptical about investing in “global trends”

Investing in a "globaly demanded" product or service seems (at first glance) to be a nice idea. However, it may be (too) dangerous: not all global trends turn into profit and even if they do, you need to get in early since most of global trends (even genuine) turn into bubbles and do burst. 

On 11.07.2016 I attended a very interesting presentation "Globale Trend schaffen Anlageopportunitäten" (global trends provide investment opportnities) by Sven Seeber from UBS. I learnt a lot about global trends, intel alia about obesity and cancer treatment, urbanization, robotization, waste utilization and much more. They at UBS are very vigilant about the global trends. However, Mr. Seeber said nothing about the earnings, and as I explicitly asked him "what is your mean annualized return?", he has reluctantly named a pretty modest number. To be true, it was not a big surprise for me, since I know enough global trends that turned into bubbles and burst or simply brought no profit. Let's discuss some of them:

  1. Internet and E-Commerce. Definitely a genuine trend. I started using Internet (via 33.6K dial-up connection) in 1997 and immediately recognized its commercial opportunities. Actually, I was able to finance my "Msc Finance" in Germany due to the money I earned being a part-time webdeveloper and SEO-specialist in Russia.
    However, we all remember the DotCom crisis (which all the same occurred although the global "e-commercialization" did and does persist).
  2. Boom of Commodities (oil in particular). As Chinese economy rapidly grew, there was fear that the oil, a non-renewable fossil, will get more and more expensive. Shale oil and a slowdown in Chinese growth broke this trend.
  3. Renewable Energy (solar and wind). I believe it is a genuine global trend. However, many solar stocks turned to penny stocks or were even delisted and also the for the wind energy the wind was not always fair. An epic fail in the German market was Prokon case: a windmill park that promised a "risk free" 6.5% p.a. A promise of riskfreeness was not a (pure) lie, since the German state pledges to buy the renewable energy at a fixed price, which is given in advance. However, the Prokon's guys created a strong mismatch in asset-liabilities (they tried to finance 10-year liabilities with 5-years special bonds).
  4. 3D printing. It is definitely a nice technology for rapid prototyping. And I am really admired with guys that can print houses and even hamburgers. But what did the Solactive 3D Printing Index within 3 years? It halved!
  5. Big Data and Artificial Intelligence. Well, my favorite one. I have already written that for trading these are buzzwords rather than a genuine breakthrough. Though generally I am less skeptical and even optimistic for some branches (like insurance or medical care), I saw enough CEOs and other highly ranked managers that eagerly talk about big data but has no idea about the limitation of the MapReduce.

Conclusion: In investment the idea of "global trends" is rather a marketing trick than a genuine investment opportunity. Remember, Warren Buffet prefers investing in established values.

Like this post and wanna learn more? Have a look at Knowledge rather than Hope: A Book for Retail Investors and Mathematical Finance Students

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