Investing in Megatrends: You’d Better be Good at Predictions

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Should You Avoid Megatrend Investing?

Megatrend investing is popular — who doesn’t want to be at the forefront of a major trend or shift? But megatrends don’t always equate to success — at least not for every company.

Would investing in time-travel technology (assuming the technology ultimately produces a working time machine) be a good investment? The answer depends on how the word “ultimately” is defined. If you invest today, and the first working model is created 200 years from now, the investment will probably be a bad one. That is unless someone travels back in the machine to help it get invented sooner, or at least to find out who the next Super Bowl champions are. But I digress…

What is a Megatrend?

When we talk about megatrends, we are not talking about popular fads like bell bottoms or fidget spinners. Megatrends are major changes in cultural attitudes and beliefs that permanently affect multiple areas of life and business. Megatrends often cause disruptive changes to industries, especially within technology and the environment.

Take climate change, for example. As society moves towards green alternatives and clean energy, investors find opportunities in companies moving towards sustainability and eco-consciousness. This megatrend affects commercial businesses, agriculture and food industries, tourism, and plenty more.

Megatrend investing requires a commitment to a trend that will potentially shape and evolve societies and economies for decades. From automation to an aging society, investors must predict what products or companies will successfully disrupt or transform an industry based on these trends.

Investing in Megatrends Is Trendy

What about developments that are far more imminent? Is investing in megatrends really a thing? John Naisbitt’s 1982 hit book, Megatrends, sold more than nine million copies. Some readers went on to use Naisbitt’s predictions for their financial benefit.

Among Naisbitt’s predictions:

• We will shift from an industrial society to an information-based society.
• We will move from being a self-sufficient national economy to being part of a global economy.
• Society will shift from hierarchical structures to informal networks.

Many companies have taken note. “General Electric is focusing more on sustainable energy and relying less on financial services,” writes CBS reporter Kirsten Korosec. As of 2011, GE “spent $11 billion in the past six months buying up companies that will strengthen its energy sector” and bought a 90% share of Converteam for $3.2 billion. Converteam specializes in high-efficiency electric power conversion components used in the oil and gas industries, renewable energy, and power generation.

Then, in September 2019, GE announced that it would make all of its wind, hydropower, energy storage, and grid operations carbon neutral in 2020 in conjunction with efforts to provide more sustainable products to its customers.

Megatrend Investments: How Often are Predictions Right?

Many pundits have forecasted today’s megatrend investing. Take this report from PricewaterhouseCoopers in which they cite these areas to mull over:

• Urbanization
• Emerging economic forces throughout the globe
• Population growth and demographic changes

In MIT’s Sloan Management Review, author Andrew Winston discusses nine megatrends to watch:

• Longer lifespans
• Creation of megacities
• Data transparency
• Climate change and extreme weather leading to mass migrations
• Resource constraints (e.g., metals, water, etc.)
• Zero-carbon technology
• The internet of things
• Globalized policy
• Populism, nationalism and radicalism

Should you, therefore, invest in GE? Or in home builders in India? Should you invest in companies that develop “smart cities?” Maybe, but not necessarily.

What Could Go Wrong?

Predictions can be wrong, but even when they are correct, not every company in a given space will prosper. Case in point: 1977 saw the introduction of the TRS-80 by Radio Shack, the PET by Commodore, and the Apple II by Apple. Which one have you most likely heard of? Exactly. Yet even in Apple’s case, the price ride has been bumpy.

Or, take the Chinese startup Ofo, a bike-sharing company that received over $2 billion in invested capital. As investors embraced the megatrend of China’s emerging economic force, as well as the country’s bike-sharing boom, they forgot the basics of successful startups. Too much too soon can lead to overspending, and that’s why Ofo went bankrupt.

While megatrend investing and trendy ETFs (exchange-traded funds) become more popular, BlackRock tells CNN Business that investors should go beyond a single company’s stock if they want to profit from trends. Armando Senra, head of US, Canada, and Latin America iShares, says you shouldn’t just invest in Tesla if you want to take advantage of a trend like self-driving vehicles or clean energy. “It’s who makes the batteries, who makes the sensors. You’ll be buying the lithium. When you’re buying these themes, you’re really going deep,” he said.

The bottom line on megatrend investing: A rising tide helps, but it does not raise all ships. Being able to predict the future, if not traveling to it, would be way better.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can listen to at your leisure and each includes a comprehensive customer PowerPoint about the topic):

1. Evolution of Trade Finance Technology 2021
2. Block Chain and Supply Chain 2021
3. Block Chain and Smart Contracts 2021

This is an updated version of an article originally published on December 16, 2019.]

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