The Next Big Investment Wave

Surfing the Big Waves

If you park your money in the same place for 20 years, you can do well. But a lot of times you’ll just keep up with inflation. And sometimes, the only gains you make come from steadily pouring money into your parking spot over many years; it’s just a savings plan. Not an investment plan.

Great returns come from catching the waves. Good waves can last anywhere from 2 to 5 years. You hop on, ride high, and then hop off and look for the next one.

The dot com bubble was a nice wave. And over the last few years property has been a good wave. The real question though, is … where’s the next big wave?

Wave Spotting

The answer has 2 parts. First, the sectors or industries should be experiencing strong growth. And second, where individual companies are concerned, they should have strong growth potential.

And by strong growth potential I’m not asking myself “are they cool” or “are they in the hot industry of the moment”. The question I’m asking is “can they sell it”?

Big Wave Candidates

Here’s a list of strong sectors to keep your eye on and maybe get involved with. In each of them there are a whole host of companies.

I won’t list specific companies because you should do your own research. And no matter how hot an industry is, some companies will bring stellar performance and others will completely bomb.

1. Commodities

Have to mention it, just because the cost of everything (energy, grain, metals, etc) has been on the inflationary rise. Commodities are the raw materials for everything else. When they go up, the cost of everything goes up. And that’s the problem with commodities that I don’t like.

Not only do rising commodity prices have the power to hurt every other investment opportunity out there (costs rising faster than revenues), but they have the power to hurt their own earning potential too.

2. Alternative Energy

One good side-effect to the high cost of commodities (oil) is the strength in alternative energy sources. Solar is very strong (I resisted the temptation to say it’s hot). Wind is strong. Biodiesel.

It’s also worth looking at the technologies that make these energy alternatives easier, more efficient, and cheaper to produce.

3. Food Production

Companies that produce phosphates and potash (fertilizers) that aid in agricultural growth and food production have been very strong. This is, with regards to chemical pollution, a controversial industry. But given the alternative (trying to feed the world with lower crop yields), it’s got nowhere to go but up.

4. Financial Companies

Banks and investment corporations have been taking a bath thanks to their risky plays in the subprime mortgage market. And they’re still wet. But they’ve got 2 things going for them.

One, they’re down and that translates into “they’re cheap”. Two, finance is the cornerstone of every other business and investment vehicle. They don’t just make money, they are money. In the second half of 2008, we’ll really start to see who the comeback kids in the financial sector are.

So those are a few hot sectors. There are others, and of these I’m more bullish on alternative energy and finance because I can wrap my head around them easier than the others. Which is an important point in itself …

If you don’t understand how they make money, gravitate towards something you have a better understanding of. It’ll help you sort the winners from the losers a lot easier.

Post your wave faves for 08 and beyond in the comments.