Too often in investing we pick a share, check its P/E ratio and its dividend yield, check if there’s any bad news that might put us off buying-in, and then if all is fine we take the plunge.
But I’ve consistently said that we need to take a step back, look beyond the numbers, and see the big picture. What are the key trends that you should consider when investing? What are the background themes that could make all the difference to the companies you buy into?
Well here are five trends that I think you should seriously consider when investing.
We used to call them the developing world. Then we called them emerging markets. To a large extent, they’ve now emerged. China is the world’s second largest economy, and India isn’t far behind. Then there’s Brazil, Saudi Arabia, Malaysia and South Africa.
This is a world that, instead of being dominated by America and Europe, sees the wealth more evenly spread. But this has created new challenges.
Many of the West’s industries are facing fierce competition from the East. But these new companies present opportunities for investors to take up. Investors can no longer be insular, and must keep their eyes open to investments beyond Britain’s shores. I firmly believe that emerging markets should be a key part of your portfolio.
The global consumer boom
A knock-on effect on increasing global wealth are the burgeoning ranks of the world’s middle class. These people are consuming as never before.
That’s why investors should invest in companies that take advantage of the consumer boom that we’re just on the cusp of, whether you’re talking about fast moving consumer goods manufacturers, fashion retailers, global banks or fast-food retailers.
The technological revolution of the past 20 years has transformed the way we work and the way we play. It has changed the way we organise our finances, the way we do business and the way we communicate and socialise with each other.
That’s why investors should look to buy into tech companies, and also consider the huge impact on industries that range from banking and insurance and television, to postal services and the High Street.
The world’s population is rapidly growing, and ageing, and global wealth is also surging. That means that the demands on healthcare systems will increase, and the spend on pharmaceutical products will continue to push ahead.
Investment gurus such as Neil Woodford have said that there’s still great potential for healthcare companies to grow. I firmly agree with him. Invest in pharma firms with a stake in the latest biotechnologies, and in supplying blockbuster drugs to the world’s consumers.
Energy and mining
Alongside these high growth areas is a sector where a long-running boom is coming to an end. Since the turn of the century, commodities stocks have been on the rise, but profitability is now on the wain, and share prices are falling. This sector is now entering a bear market, and is to be avoided.