Many investors fantasise about getting rich by hopping on the next moving train before everyone else. However, it can sometimes be challenging for investors to identify the next rising stars in the market, thanks to ongoing market fluctuations and instability.
But even though market volatility is a regular occurrence in the short term, when you look over the long term, the stock market often proves to be the best way of growing your money and wealth for retirement.
In this article, we’ve looked at some historical booms and busts in key industries and what an intelligent strategy could be for investors in 2023 and beyond.
Historic boom and busts
If we start by looking at the past, most notably when ‘tulip mania’ hit Holland in the 1630s, tulip bulbs rose in value to equal the price of a Dutch home. This ultimately led to bull markets and stock price bubbles being introduced as a feature of worldwide financial markets.
But what does that mean? Well, after a bubble bursts, a new drop is usually close behind.
This is true, looking back to around 30 years ago when Japan’s real estate and stock sectors experienced a boom, so much so that it was often claimed that the value of Tokyo’s imperial palace exceeded that of all Californian properties.
At that time, the seven most prominent corporations in the world were Japanese as speculative investors flooded the Japanese stock exchange in 1990. But then the bubble burst and only two Japanese companies reached the world’s top ten list a decade later.
Today, the most recent boom came from the FAANG stocks — Facebook, Amazon, Apple, Netflix, and Google — the tech juggernauts. They rose dramatically for over a decade until the beginning of 2022, when their stock values began to fall.
According to Louis-Vincent Gave of the research firm Gavekal, bear markets (when the market loses 20% or more) are painful, but they are necessary to change the market leadership from one group of stocks to the next.
Nine out of the ten largest corporations in the world by market capitalization by the end of 2021 had a tech focus. Of those, the parent company of Facebook, Meta, and the Chinese game giant Tencent have already fallen to ranks 23 and 29, respectively. Tesla’s percentage of the market was down 70% in 2022, Nvidia, a manufacturer of computer graphics chips, was down 52%, and Amazon was down 51%.
Gavekal advised those waiting for these companies to recover from doing better by spotting the next popular trend, further contending that waiting for the US Federal Reserve to lower interest rates before investing in Nvidia or Alphabet (Google’s parent company) is about as rational as waiting for the Bank of Japan to drop interest rates in Tokyo in 1992 before investing in the Industrial Bank of Japan. It could be a better idea.
So what could be the next big thing in investing?
The intelligent strategy could be to combine some of the fast-growing businesses from the next tier or two down with the global Goliaths still on the rise. It’s always tricky to predict who will lead the next bull market, but here are some potential candidates:
1. Clean energy
A capital reallocation on an unprecedented scale will likely occur due to the transition from fossil fuels to cleaner energy sources during the next several decades. With the introduction of the Inflation Reduction Act by US president Joe Biden, this has truly begun. It offers subsidies for nuclear and solar energy, which might change the prospects for businesses like Constellation, a nuclear electricity generator.
According to Morgan Stanley, small modular nuclear reactors have the potential to become a popular technology in the future. Due to its scale, nuclear power production could be more flexible and affordable. Companies like UK-based Rolls-Royce, US-based General Electric, and Poland’s KGHM Polska could be leaders in this field.
2. Fossil fuels
Oil and gas companies face challenges due to the transition to green energy, but market trends indicate that they may continue to prosper for some time.
Oil and gas exploration spending has decreased by half, from $695 billion in 2012 to $351 billion in 2021. However, during that time, the oil demand increased from roughly 90 million barrels per day to about 100 million barrels per day.
In addition, the percentage of new electric cars sold in Norway increased from 0% in 2010 to almost 90% by 2021, despite a decrease in the need for transportation fuel of about 0.3% annually. The impact of electric vehicles on the oil demand is slight, for now.
Energy companies have also improved their operations, producing record cash flows and returning most of their profits to shareholders. Energy shares could be a high-conviction sector due to supportive commodity prices and capital gains.
3. Biotechnology and healthcare
The rapid development of a Covid-19 vaccine is a testament to the innovation in this field. Thermo Fisher Scientific, which offers the products and services that businesses engaged in the life sciences and researchers require, is favoured by Edelsten.
Longer lifespans are driving this investment trend; according to Morgan Stanley research, by 2050, there may be over 250,000 people in the UK who are 100 years or older. Companies that have researched regenerative medications that slow or reverse the ageing process, such as the German company Bayer and the US company Unity Biotechnology would be worth a look.
Ready to find out more?
Making judgments about your investments should not solely be based on trying to identify the next trend. However, if you have strong beliefs in a specific area, it may be worthwhile to look into its prospects. Or if you would like to receive expert advice on investing, then Brite is a great place to start.
Our investment philosophy is based on taking the long view and thinking about protection first – as nobody knows what’s around the corner. Contact Brite here if you want to find out more.