The world always changes but our natural response to changes tends to be akin to the ‘boiling frog’ syndrome – we only react after all the changes have been completed and it is too late. Not this year. Covid-19 has caused the world to adopt changes at an accelerated pace – digitalization of work processes finally became a priority after years of unresolved meeting action item.
This experience has caused me to pay attention to changes rather than the status quo. It was a paradigm shift. I used to think that there were plentiful everlasting information that would give us a higher chance of success in the future if we acted on them. I might have developed this thinking through the education system which I grew up in – it was pretty much about studying past exam questions so as to be better prepared to answer the future ones.
But the world always changes. Not everything that we read about the past is going to repeat in the future to the tee. Contexts and situations change ,so we have to be ingenious and adapt. In fact, adaptability is the hallmark of evolution according to Charles Darwin.
There are no ‘10-year series‘ in real life,
- How our mentors succeed would not be how we succeed
- Strategies in investment books may no longer be applicable in the new market condition
- What has worked for the super investors 50 years ago may no longer be the formula for today
We learn about history because we want to stand on the shoulders of giants to see further. At the same time, we must know that the way forward is going to be different and we need to forge our own paths. It is a brave new world.
Today’s world is not one that my grandparents have expected nor understood. Similarly, the world in thirty years from now is something that we cannot imagine. But I believe we are able to identify the megatrends today so as to better prepared or even benefit from them. You wouldn’t be far wrong with your life or investments if you are able to capitalize on these opportunities one way or another.
Here are the 3 megatrends I recognized today.
#1 Technology (especially AI and Quantum Computing)
The tech megatrend would be the most obvious to all because it is already happening now. The trend is far from over and the world will just get more technologically advance in the future. But tech has many segments and here are some with more potential than the rest.
Cloud computing is hot right now as the world moves towards remote working. The big tech companies, Amazon, Alphabet, and Microsoft, saw huge influx of cloud customers during Covid-19. Likewise, the smaller ones such as Zoom (video conferencing), ServiceNow, Workday (enterprise resource planning), Zscaler, and Crowdstrike (cybersecurity) were in good position to take advantage of this shift.
Biotech plays an increasing role to help us keep up with the rapid evolution of viruses. Urbanization has kept people living in close proximity in the cities. And the mobility of air travel between cities made virus spread ever more easily. A lifespan of a human is just shy of 100 years but a virus may just have days or hours to live. Our immune system is not fast enough to update against new strands of viruses.
Hence, I think the new normal is that we are going to have pandemics from time to time. That means we need to go on lock downs, invent the vaccines and go out again. Biotech needs to save the human race.
Internet of Things (IoT) is still in the early commercialization stage. Singapore has already announced her goal to become a smart city – many infrastructure items would have chips that communicate and pass data to the authorities so as to better manage the running of the city. Imagine smart street lamps, drains, traffic lights, fire detectors, etc. Our homes would also see more devices able to interact with one another and we to control with just an app. IoT would be the bridge between our physical and digital world.
We need to preserve the only livable environment we have – Earth. The reliance on fossil fuels would need to be reduce. This would have a massive impact to the infrastructure (oil rigs, supply chain, oil tankers etc) we have spent over the years as we adopt more clean energy (wind and solar) sources.
Artificial Intelligence (AI) is a hot topic too. No, I don’t think it will replace humans but it’ll assist us. This is important because our population is aging at the same time and we wouldn’t have enough workers to support a bigger economy in the future.
We do need all the help from our virtual assistants so as not to overwork the future generation. Finally some of the cognitive problems can be left to the AI while humans do more of the creative, conceptual and innovative thinking. I believe AI would be the true productivity boost we have been waiting for. The GDP growth would likely be driven more by productivity than labour.
Quantum computing is going to remove the present hardware limitations and create new possibilities for software to flourish. A quantum computer is 100 million times faster than any classical computer. Google has also claimed that it has a quantum computer that needs only 200 seconds to solve a problem that would take the world’s fastest supercomputer 10,000 years to figure out. Imagine you give AI capability to a quantum computer. The world can be a scary one.
#2 Rise of China
China is the world’s second largest economy and it is growing at about 6% per year.
US is the world’s largest economy and it is growing at less than 3% per year.
If this trajectory continues, China will surpass US as the biggest economy in the world in 11 years time.
China can already be considered a superpower today – a country that the U.S. is wary against. We just do not know if China would be the only superpower in time to come. It is a possibility and not many people have a chance to witness a superpower changeover in their life time. I believe that having a part of your investment in China is going to be a good move. Even our sovereign wealth fund, Temasek, has more investments in China than in Singapore.
We have also seen China surpassing the US by having more companies in the Fortune Global 500 (year 2020) and I believe the gap will continue to widen from here.
Unicorns are private companies with more than US$1 billion valuations. These are usually innovative tech companies. The number of unicorns in a country reflects her innovativeness. Currently, the US tops the world with 136 unicorns while China is not far behind with 120.
While China still needs U.S. technology in certain areas (e.g. semiconductor manufacturing equipment), the trade war and technology lockouts have pushed China to accelerate towards self-sufficiency. Made in China 2025 initiative is a testament of that.
China has proven her ability to execute and build a strong economy that could rival that of the U.S. Although there can be hiccups along the way, China is going to grow from strength to strength. If you aren’t confident to compete with the Chinese businesses in China, investing in Chinese enterprises may not be a bad idea after all – if you can’t beat them, join them!
#3 Cryptocurrency
You might have noticed that the megatrends get increasingly difficult to accept as you go down this list. Some may accept tech but not China. But cryptocurrency is likely the least mainstream investment today.
Bitcoin had a crazy run in 2017 and crashed spectacularly, taking away wealth and interest in the cryptocurrency market thereafter.
Is cryptocurrency a gamechanger or a passing fad?
It is both in my view. While some cryptocurrencies and tokens can sound ridiculous, cryptocurrencies and blockchains do possess the potential to have mainstream applications.
I see cryptocurrency as a new internet by itself, not so much of a form of currency or a store of value.
- You can use cryptocurrency to handle ledgers. This could disrupt the custodian or accounting roles carried out by the financial institutions.
- You can use cryptocurrency to store files and data. This could disrupt cloud computing if successful.
- You can use cryptocurrency to raise funds from public. This could disrupt the traditional way of doing IPO.
- You can use cryptocurrency to enforce contracts. This could replace the legal paperwork used today.
Cryptocurrency is evolving fast – improving in security and expanding in applications. We now have stable coins that move like real currencies and decentralized finance (DeFi) tokens that try to disrupt the financial industry.
It is true that cryptocurrency still lacks the legitimacy but I believe it is maturing fast and a megatrend to be recognized.
Are you ready for a new world?
2020 was a year of accelerated change because of Covid-19. We are not going back to the world we know and past formulas are not going to work in the future.
Investment thesis needs to be updated to keep up with the times. We need to learn how to adapt to the new environment. One way is to recognize the megatrends that would shape the future and one can invest in them if careers and businesses are not possible.
I have identified technology, China and cryptocurrency as the 3 megatrends that could change our world for the next 30 years. I believe allocating some funds into these areas would reap long term benefits. You won’t go too wrong with your investments if you are in these megatrends.
If you want to stay ahead, join me in my live webinar to learn how to grow your portfolio by identifying the right megatrends.
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