“My interest is in the future because I am going to spend the rest of my life there.” – Charles Kettering
One of the best economic thinkers out there right now is Robert Gordon, who gave a great speech about the American economy at a recent TED conference.
Gordon spoke about America’s amazing run of economic growth from 1870 to 1970 with innovation being a big part of the story.
Breakthroughs such as electricity, indoor plumbing, transportation (trains, cars, and aircraft), infrastructure, communications, and medical care – in addition to rising educational achievements and population growth – drove steady increases in American productivity, income, profits, and a rising middle class – the backbone of any healthy economy.
Looking ahead, Gordon thinks that America’s economy will have a tougher time keeping the momentum.
Why? Because instead of enjoying tailwinds, it now faces challenging headwinds such as poor demographics, weak education, crushing debt, and rising inequality.
This is pretty consistent with the mood in the country right now, and forms the talking points of many of the candidates running for president – with the significant exception of Marco Rubio.
But a new book by Alec Ross paints an altogether different picture of America’s future: The Industries of the Future.
Ross paints an upbeat, lively picture highlighting many emerging industries, from cyber security and big data, to financial technology along with a huge, emerging trillion-dollar industry at the heart of life sciences – genomics.
He sees huge opportunities for young people in this industry, as there’s a sizable skills gap with many good-paying jobs for those with only a technical degree.
Broaden Your Horizon
From an investment point of view, I think the current challenges China is facing – as well as the weak relative performance of emerging markets over the last several years – are blinding many to the real opportunity.
In short, you need to move emerging markets from the fringes of your portfolio, to the very center of your investment strategy. And corporate America needs to put selling to emerging market consumers at the top of its growth agenda.
Why not capture the growth of markets that offer significant tailwinds that supercharge growth and profits?
Just think of it. About 70% of the world’s population is just beginning to enjoy the many innovations that propelled Americans growth from 1870 to 1970. And per capita incomes and production rates of emerging nations are at about 10% to 15% of Americans.
Many living in emerging markets still don’t have access to electricity, clean water, or indoor plumbing. The need for better infrastructure is enormous. Demand for better transportation, consumer goods, technology, education, medical care, and luxury goods, is booming along with the means to pay for them.
This “catch up” of past innovations plus the ready adoption of new technologies is fuel for much higher growth and investment returns. You need to capture this growth – or risk falling behind.
The Right Strategy Is Crucial
To capture most of these big gains, and avoid these downturns, you need the right strategy. This means a disciplined, opportunistic, active, and value-based approach.
What is the common denominator of all great value investors? At all costs, they avoid buying into emerging market companies after they have made a nice run, have become too expensive, and are vulnerable for a pullback.
With emerging and frontier markets cheap and out of favor, this is the time to take action.
Finally, if you want to really supercharge your wealth, you must look far beyond the usual suspects of Brazil, Russia, India, and China (BRIC). With the possible exception of India, they have significant flaws.
There are much better opportunities in many other countries – some offer us better opportunities than the China of 20 or 30 years ago.
These markets are also completely off the radar screen of Wall Street analysts and the financial pundits. Investments and capital are headed to these markets, and it’s starting to show up in the performance numbers.
By shifting your emerging market strategy away from “buy and hold,” and the BRIC countries, to an active value approach targeting other emerging markets, you’ll put the probabilities of success in your favor.