Long-term investment trends

Over time, economies expand (grow faster) and contract (grow at a slower pace, or even go backwards). These cycles can influence the sort of companies that investors want to add to their portfolios.

But another influence on investor behaviour can be broader and longer-term trends (investment or ‘secular’ trends) such as climate change, technology and demographic change.

Here’s why they’re important.

Long-term trend or business cycle?

It’s worth pointing out the difference between a broader and longer-lasting investment trend and the business cycle – where the economy moves through periods of growth and decline.

The business cycle, which is marked by economic booms or recessions, can accelerate or slow the momentum of an investment trend from time to time. Although over longer stretches, the theme will outlast these short-lived influences and continue to evolve. 

Longer-term investment trends are important to understand if you invest or plan to invest because they can often create winners and losers. Smaller companies can become winners, growing into larger, more profitable organisations if their strategy and service are well placed to take advantage of the trend.

At the same time, investment trends can disrupt the way established companies do business, creating opportunities for emerging companies to grow and disrupt at their expense. 

Technological change

One of the most consistent drivers of investment trends over hundreds of years has been technology. Some recent examples of companies benefiting this secular trend are companies like Amazon, Google parent Alphabet and Apple.

Famously, Apple had its beginnings in a friendship between Steve Jobs and Steve Wozniak, who built their first computer in a garage in the 1970s. The company that followed, listed on the sharemarket in 1980 at US$22 per share, was at the time valued at just over US$100 million.

As of today, (May 2023), Apple is the one of the most valuable organisation on the planet, valued at US$2.7 trillion with more than 2 billion active devices and an annual net sales revenue of US$394 billion. (https://www.statista.com/statistics/265125/total-net-sales-of-apple-since-2004/).

Today we tend to associate improvements in technology with our computers and phones being able to do more. But in the past there were plenty of examples of technology having a profound impact on the way we live our lives and wealth creation.

In the same way we see computers, the cloud or Artificial Intelligence (AI) as symbols of innovation today, one hundred years ago we would have seen the light bulb in exactly the same way.

Electricity generation and distribution, and the incandescent light bulb changed the way society lived and worked in the early 1900s. It was in this environment – 130 years ago – that a company emerged which, in many respects, was the Apple of its day. The General Electric Company, whose founder was Thomas Edison, was the first company to be issued with a patent for the incandescent lamp – that little ol’ thing we’d call a light bulb today. And General Electric grew as the US economy did over the course of the previous century.

Clean Energy

Electricity creation and distribution are equally important ideas for investors today as they were 100 years ago. The energy that powers our lives and the economy today however is seen through a vastly different lens – one that is defined by terms like decarbonisation, net zero emissions or Environmental, Social & Governance (ESG) investing.

These themes are driven by a number of powerful drivers, most notably the way Governments and business owners plan and invest, in addition to how consumers are demanding that their funds be invested.

Carbon neutrality and energy sustainability are attributes that may be driven by government, individual investors and the companies themselves. And the environmental qualities and behaviours of companies may now be as important, or more important for investors, in choosing investments than the state of balance sheets.

Winners and Losers

While investment themes can turn around big ideas that paint an exciting picture of the future, it’s important to keep your feet firmly on the ground when it comes to choosing to invest in these trends. As mentioned, investment trends have the ability to create winners and losers, so it’s important to get a good grasp on what organisations or industries might fall into either category.

Above all else, it’s important to apply the investment principles that might be used in any other setting; like investing in quality companies at the right price and investing over the right time horizon that suits your financial objectives and needs.

Not sure how to start your investment plan? Read here before you do.