Long-Term Investing Themes in an Uncertain Market
In an uncertain market, and I am increasingly convinced we will be in one of those until at least the end of the summer, I have learned over the years to shift my focus from short-term opportunities to very long-term themes. The trader in me wants to buy and sell when stocks are moving around, but if markets downturns come frequently, unpredictably, and with some severity, that isn’t usually a very profitable strategy. Thus, I have recently trimmed some positions in my trading account and sold some of the more speculative bets that I was holding, with the aim of freeing up some cash to be deployed in my longer-term investment account when the expected downturn materializes.
I will be looking for some ultra long-term themes, investments that have a chance of being what, say Microsoft (MSFT) was in 1987, when its stock could be bought for a split-adjusted price of around $0.20. I am looking for well-run companies whose products and services fit a revolution in business and consumer behavior. Before identifying individual companies, though, you have to identify such areas. Where will money go over the next thirty years?
The most obvious area of opportunity is in the most basic goods of all. The world’s population is growing and will continue to do so, and while that will lead to more discretionary goods and services being sold, it will also inevitably lead to increased demand for the basic necessities of life, food, and water. The difference is that food and water have national security as well as economic implications, so advances in those fields can be expected to develop not just without government restrictions, but with the active help of massive public funds. The two things are inevitably linked as agriculture requires irrigation, and there are developments in both fields that could provide opportunities.
On the water theme, usage management and reclamation are the main areas of focus. If we use treated water more efficiently and recycle more of it after use, there will be enough of it on the planet to support decades of population growth. After all, water is something that, in most cases, is not just used up, but is changed during use, from clean to dirty, or from liquid to a gaseous state, for example. If we fail to improve efficiency and increase recycling and reclamation, water scarcity will be a theme that impacts the world for decades to come and a lot of money will be thrown at the problem. The stakes are so high that increased investment in the area is almost inevitable, and a spread of investments in water technology now, as that trend is still young, could look very smart indeed in thirty- or forty-years’ time.
The problem is a global one, and solutions will need to be the same. From an investment perspective, while U.S.-focused companies like New Jersey-based American Water Works (AWK) and California Service Water Group (CWT) have some appeal, the greater long-term opportunities will probably come from those with a more international approach, such as Xylem (XYL) and Global Water Resources (GWRS).
In agriculture, there should, in theory, be plenty of capacity to go around. The question is how we exploit that capacity effectively, and there are two approaches right now. One is regenerative agriculture, a method that eschews some modern advances and the trend towards single product production. Instead, the movement advocates for a system of multi-use, self-supporting farms, where animals naturally fertilize the crops that can be sold and that, in turn, feed them. The investment implications of that movement are on a smaller scale in the positive sense, but also are a negative for big, chemical-focused agriculture companies, something that should be borne in mind when investing based on the theme.
The second trend, precision agriculture, is about using data analysis and other tech to achieve what has been the aim of agricultural advancements for decades, maximizing yields per acre. That might seem like the opposite of the regenerative approach, but it doesn’t have to be. The push towards responsible, sustainable food production that has fueled the growing interest in regenerative agriculture isn’t going away, and data analysis and other tech-based solutions can be applied in that context just as much as in larger, more industrialized farming.
Adding these two trends together results in a long-term investment preference for companies that are focused on developing solutions to the needs of agriculture, but solutions that are based on tech rather than chemicals. That brings in companies like AGCO (AGCO), say, or Trimble (TRMB).
I am not usually a big “sell in May and go away” kind of guy, but with interest rates having been pushed so much higher so quickly, the next few months are likely to be unsettled at best as traders and investors assess the impact of rates at levels not seen for decades. That means having some cash on hand is advisable, and deploying a potion of it in ultra-long investments with time horizons measured in decades such as those mentioned may be a better option than trying to time a market bottom.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.