Conventional wisdom held that investing in the stalwarts, the old blue chips, was the way to safely invest. Dull but successful. The market continues to hit new highs, mostly through the action of the biggest companies, that are more a mix of the new blue-chips like Microsoft, Intel, and Cisco. Alas, my portfolio of originally small-caps and now micro-caps currently languishes. Whether my portfolio will recover or not will merely take time, and its potential will be the subject of my semi-annual portfolio exercise due the end of this month. In the meantime though, trends are undermining the fundamental business environments that support the stalwarts that support the markets. The changes may fundamentally change the markets and investing.

I watch trends. I don’t always know why, but it is human nature to look for patterns. Some people watch patterns in sport scores and celebrities’ career arcs. I enjoy watching the way our society, culture, civilization and world are changing. Sadly, our world is experiencing some dramatic changes. Gladly, our responses are providing some positive possibilities for the world, us, and investors.

Power, banking, housing, technology – all are changing. Each change is large enough for its own story, and has multiple consequences. Put them together and the interrelations become complicated enough to conjure up the consequences of chaos theory. Trying to understand them simultaneously is overwhelming, but necessary for serious investing.

Power

• decentralized power
  • Solar, wind, geothermal, batteries, and fuel cells are all becoming effective, efficient, and affordable enough that it is easier for people to go off-the-grid. Take it far enough and a suburban house won’t need a power pole outside. Do that often enough and the need for massive infrastructure fades, and so does a utility’s business.The views improve, and housing options proliferate.
• divestiture of fossil fuels
  • Public awareness of the limit to the resources, the impact on the environment, and the power of those who sell power have convinced people and institutions to sell their investments to buy something more sustainable and acceptable. The revenues will remain for a long time, but the demand for the supply of their stocks is diminishing faster than the fuels.

Banking

• micro- & peer-to-peer lending
  • As both lenders and borrowers, people are finding ways to deal directly with other people because they’ve been put off by low savings rates, tough lending policies, high credit rates, and a decreased trust in banks that are too big to fail. The banks may not notice, but as the trend grows they’ll have to. The consumer part of the economy may learn to largely ignore the large banks, and the consumer is the largest driver in the economy.
• decentralized currency
  • Local currencies, barter systems, time banks, and cryptocurrencies (such as Bitcoin) are proving to be attractive alternatives for people interested in avoiding currencies run by central authorities. Maybe they don’t like the central control or the way the currency is managed. Maybe they prefer privacy. Libertarians have an alternative that didn’t exist five years ago. In either case, the effects are small for now, and yet another market segment is lost to a financial business.
• student debt
  • Student debt exceeds all debt except mortgage debt. If those graduates weren’t in debt there are enough loans out there to finance a lot of houses. But, student debt means less money spent on the two largest purchases in most people’s lives: houses and cars. Unemployment may be down, but not by much for millennials, and the ones with jobs frequently aren’t working in their field of study or making enough to pay off the debt. Not good for housing and companies selling housewares, or car companies and businesses like suburban malls that expect to fill massive parking lots.

Housing (though the topic has already come up)

• urbanization
  • Worldwide, people are moving to the cities. (I prefer my island, thank you.) That’s where the jobs are, lifestyles are more transient which is good in a changing environment, public transit means it is possible to not have a car, there’s plenty to do, and there’s a degree of anonymity that is freeing. All which means lower demand for suburban developments, less taxes for bedroom communities, and fewer people spending money in the malls. The same impacters as those hitting the student debt crowd, which makes sense because there’s a lot of overlap but it is true for every generation.
• tiny house movement
  • People fed up with mortgages, who feel owned by their stuff, who feel they live for the house rather than the other way around, who want to make a smaller impact on the planet are all types who are downsizing, in some cases dramatically.
    

    For Sale

    Build your own house for under $20,000, or even $10,000, be debt-free, possibly off-the-grid, and with limited storage – and no longer be much of a consumer of goods. Which leaves a lot for consuming experiences, helping others, or both.

• climate change
  • In some neighborhoods, debating climate change is as silly as standing on the deck of the Titanic and getting into an argument over whether the skipper was at fault. Low lying neighborhoods in places like Norfolk and Florida are already dealing with high tides that are too high and getting higher. Coasts concentrate people in cities. Old jokes about buying swampland in Florida may reappear, but aside from the humor, there will be a shift in housing which will necessitate a shift in infrastructure and services. Shifts are opportunities for change, not just in location but in habits, traditions, and attitudes. Ironically, this is an investing opportunity, but also a caution if a business is entrenched and committed to risky land.

Technology

• automation
  • Automation continues, and it will probably accelerate now that devices talk to devices and we’re more likely to trust them to drive cars, tend patients, flip burgers, milk cows, fly airplanes, and fight wars. It is the ultimate outsourcing, finding a source outside the species. Great opportunities for the companies and the technical folks. Less for the rest of us to do. Gotta think this through.
• rise of the cloud
  • Information is moving to the cloud, which is really just a way to say we trust the Internet as much as we trust our devices.
    

    Looks like a laptop, but the files live in the cloud.

    That’s not an impressive endorsement, but it is true; and is being proven by people who use social media for messages, photo albums, home videos, and their finances. The power is headed into the cloud, so check out those companies; but also check out the NSA and Net Neutrality.

• digital singularity
  • Digital singularity, the event that trumps everything above, that is one day closer every day, and that just passed a milestone as a computer passed the Turing Test (maybe). There’s no way to guess what happens, which is why people ignore it despite its phenomenal potential effects. Estimated to happen sometime before 2045, yet rarely accounted for in a retirement plan.

And then there’s the geopolitical, but I’m skipping that because my arm hurts from typing so much. I’m also skipping the geopolitical because the power within politics is tied to the stalwarts. Politics is already dysfunctional enough that none of the trends above are stabilizers. That instability will probably also fuel the decentralization trends.

I think about such things as a habit, and also because understanding trends has worked well for my investments, until the recent upset. That’s why I own AMSC for power efficiency, GERN for innovative medical treatments, GIG for the increased demand for bandwidth, MVIS for the increased interest in decreasing the size and cost of electronics while increasing the quality and battery life, and RGSE for decentralized solar power. But, trends that historically were independent are now more likely to intertwine in unexpected ways. Stuff it all into one brain at one time and there better not be any interruptions because there isn’t room for another thought.

My conclusion is to watch the trends, invest to support the most sustainable and positive momentum – and be very flexible.

My suggestion to anyone is to figure out where your life is heading within your world. You’re the expert on you. Trust yourself. And if you need a portfolio manager, make sure they are very flexible.