Investors across the board — whether it be day-traders, fund managers, or long-term holders — all have to master one simple trick: predicting the future.
Aug. 13, 2020
Leave the tarot cards and crystal ball at home guys because this isn’t a lesson on how to become the next Oracle of Delphi. Instead, it’s a simple way of assessing potential investments that is applicable to investors at any level. When you’re conducting your analysis of a company, one of the first questions you should ask yourself is will this company be larger in 10 years’ time? It seems overly simplified, but it’s actually a very important step in molding the way you look at public companies.
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A decade is a long time in the business world. 10 years ago, Facebook (NASDAQ: FB) and Twitter (NASDAQ: TWTR) were still private and Snapchat (NYSE: SNAP) was just an idea. Now, look at the way social media has completely upended how we communicate and made the world a much smaller place. There were few back then who would have predicted the sheer scale and importance it would hold in our day-to-day lives, but many would have recognized it as a future trend and made a tidy profit, and they didn’t have to be Nostradamus to do so.
Identifying and putting your money behind these trends is one of the simplest investment theses out there. Now it just comes down to spotting the ones that fit into how you see the world in 10 years. Thankfully, this is a very subjective process.
If you believe that e-commerce is only going from strength to strength, then put your money behind Amazon (NASDAQ: AMZN) and Shopify (NYSE: SHOP). What if you want to bet on a cashless future? Great businesses like Square (NYSE: SQ) and Paypal (NASDAQ: PYPL) have plenty of room to grow. What about the growth of exciting new markets like South-East Asia and Latin America? Well, three of my favorite stocks all fit this bill: MercadoLibre (NASDAQ: MELI), StoneCo (NASDAQ: STNE), and Sea Limited (NYSE: SE).
*Disclaimer: just because a company accommodates for a future need does not mean you can forego all other analyses. The company must have solid fundamentals, you can’t invest in pure potential and nothing else — although Nikola (NASDAQ: NKLA) investors may disagree with this.
These are just three trends that I’ve indicated fit into my personal investing strategy, but the beauty of this wealth creation game is that yours can look completely different. Whether it be electric vehicles, robotic stocks, online gambling, renewable energy, lab-grown meat, quantum computing, gene editing, or something even more obscure that may be an everyday thing by 2030, the onus is on you to portray your idea of the future, and then pick the stocks that facilitate it. In the short-term, this may lead to some staggering valuations due to the premium investors put on potential — just look at Tesla (NASDAQ: TSLA) or DraftKings (NASDAQ: DKNG) as an example — but by investing with a long-term outlook you are negating a lot of this short-term volatility and price fluctuation. A lot of the prices that seem overvalued today will look like a bargain in 2030.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.