I realize that a lot of posts lately have been more focused on the risk side of things, pointing out assets that I feel are overvalued these days. Believe it or not, I’m pretty optimistic about some of the innovation we’re seeing in the world. I think we will see huge strides made over the next decade and certain areas will experience a lot of growth. It’s these areas that I’m largely focusing on from a growth investment perspective. We just need to get through this current mess first which is more about preserving and avoiding losses.
I see three areas that I’m most optimistic about:
- Innovation
- Real Assets
- Emerging Asia
Innovation
Most of our growth stock holdings these days are centered around areas of innovation. These include industries like technology, fin-tech, cybersecurity and biotech. Just about all of the stocks I’ve been buying recently fall into these categories and after a year or more of consolidation, the charts of a lot of these stocks are starting to look pretty constructive like they’re about to make another leg higher.
Real Assets
It has become increasingly evident over the last two years that A) central banks have no intention of slowing down the monetary printing presses, and B) as the evidence is beginning to show that QE does little to nothing for the real economy, we’ve heard plenty of chatter that the next step will be central bank-funded fiscal spending (i.e. helicopter money). This is direct money printing and it will eventually create the inflation central banks have so desperately wanted. In that environment, the best way to protect yourself is to own real assets like real estate, gold, etc. We’re getting closer to that point which is probably why we’ve seen these assets do so well this year. The only question is whether or not we will see another deflationary shock that knocks asset values down first. That’s actually my base case right now. There are still a lot of large imbalances in the global financial system and risks (i.e. China, Europe, etc.) that are creating sharp downturns. To this point, the central banks have been able to lift the markets back up but we’re starting to see the first signs of the market losing faith in central bank omnipotence. I think we’re going to see one more deflationary shock that will create a really nice buying opportunity and then we see the central banks go into overdrive.
Emerging Asia
The parts of Asia surrounding India are absolutely going to be the center of growth for the next couple decades. They have the right demographic structures, far less debt and a lot of catching up to do in terms of their standard of living. However, I’m hesitant to have a lot of exposure here right now for similar risks mentioned above for real assets. I think further devaluation of the Chinese yuan is inevitable (as we’re currently seeing) and that will knock much of Asia down with it. But if it happens, it will be one of the best buying opportunities you will see in a long, long time.
These markets become more and more challenging by the quarter as yields on everything continue to be pushed lower. I know it can be hard to sit back and patiently wait but sometimes it’s necessary. General rule of thumb: if someone (read: the Fed) is trying to force you to do something (read: reach for yield), it’s probably wise to do the opposite. Keeping an eye on the long term picture and not getting caught up in “what’s working right now” will be the best way to get through this.
Thanks for following and have a great weekend!
-Nick