IS IT a fad? Is it a trend? Is it a cycle? Or is it a structural change?
The challenge for long-term investors is to be able to tell the difference and then be brave enough to make the early investment. If you get it right, your success will be almost unmeasurable — if you don’t see it coming, the consequences for your business will be dire. Your product, your organisation, your opinion can become irrelevant, almost overnight. Eventually you must adapt (if you can in time) or go bust.
Success is more easily recognised with hindsight. There are many examples; one of my favourites is Callaway golf clubs. Who would have dared to enter the highly competitive world of golf clubs in the face of such well-respected brands as Ping — remember them? Callaway recognised a market niche that others didn’t seem to focus on or care about. While the world’s best golf club manufacturers focused on cutting-edge design for the professionals, Callaway set out to make the game easier.
Most golfers are pretty useless. Hey, it’s a difficult game! So Callaway set out to make the game easier. Mainly they made the golf club head bigger — a bigger sweet spot (who doesn’t want that?). It was easier not to miss the ball with a Callaway club ... simple as that. Callaway went from a new entrant to a $1bn a year dominant market player in just a few years. They recognised a structural gap in the market and took it.
Probably the most obvious structural changes in our everyday lives are founded in technology. You are reading this online. Sooner or later there will be no newspaper to read at the pool or light the fire or put down for the dogs. The changes by and within the technology players have been profound. IBM and HP and Kodak have already taken back seats to Microsoft, then Apple, now Samsung? Innovation and replication are the two drivers.
Sport is changing every day now for the fans and referees, with technology allowing everything to be rewound and examined and judged in high-definition, frame-by-frame hindsight — watched and cheered and regretted in the slowest possible replay. Is it all good? Of course it is, who doesn’t want the true result? But it goes beyond replays. Players have tracking devices sewn into their jerseys, primarily to track and analyse their movements during a game and feed data into improved training programmes — they are discovering other applications.
There is a GPS in the ball as well. Now you can track and calculate the probability of any particular player scoring a goal within a given time frame. Welcome to the world of in-stadium sports betting. Once you know the likelihood of an outcome you can produce odds of it happening and ... place your bets please!
Banking is undergoing massive structural change but that requires a column all by itself. I will write about that next week, next year, when you’re all starting to trickle back to work. The role of governments, liquidity, unsecured lending, the cost of compliance, the cost of capital — there’s a whole book in there. Today I’m only going to pick two obvious ones that are already upon us: shopping and agriculture.
Shopping malls as we know them will become redundant. It is simply too expensive to display your entire range of goods in a beautifully fitted-out store and believe you can compete with online shopping, any time of day or night. You could already see the discounted post-Christmas bargains online on Christmas day! Some of the high street shops had them in their own windows ... buy this now online for 50% of the price you’re looking at. Cannibalism? I don’t think so. Foresight. Malls will shrink dramatically. Find the dress you like then go to an internet cafe and try it on the virtual self you have stored — different sizes and colours — then model it to your friends and partner on your virtual ramp. Your choice will be delivered in time for that dinner dance you hadn’t planned or packed for on holiday. Invest in storage capacity and logistics if you like retail. Oh, and you’d better figure out how individuals are funding this never-ending retail splurge.
This past year gold, oil and copper and other hard commodities came a serious second to wheat and soya beans and corn. If I remember correctly, cotton even outperformed Apple (and apples). Soft commodities rule, OK! And they will continue to do so for the foreseeable future. The best performer for last year was apparently black tea — you have "gold" in your kitchen.
There are a number of drivers that are going to ensure the price of stuff we eat everyday keeps on going up. The weather: droughts and floods play havoc with supply and the people who study the weather don’t see a future that is either predictable or prosperous. Farming has become old fashioned — there will be huge amounts invested in more productive yield per hectare; it’s not like the growth in arable land is outstripping population growth. Alternative use — such as turning corn into bio-fuels — will no doubt have a huge influence.
My choices for the next decade: Food, medicine, storage space and anything to do with old people.
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