Trend Awareness
Last week, articles in The Wall Street Journal about GE and Berkshire Hathaway indicated a trend that may or may not be important. What the trend is, is not the issue. The point I want to make is that opportunities for awareness and sensitivity to changes and trendsare constantly in front of us.
There was an apparent trend.It was mentioned that GE’s revenues are now 40% from energy; and Berkshire has 40% of its revenues from utilities. Both companies are cutting edge and they have invested heavily in “boring” non-tech, non-health care industries. Something is up. Is a trend getting started or has it matured latently?
Can the knowledge of trends help us? Possibly for working people, entrepreneurs, new venture investors, inventors, government leaders, educators, managers of not-for-profit organizations and others.But, I am not so sure it helps in making investments in the stock market.
We don’t “buy stocks.” We invest in companies we hope will grow profitably. Current profits are important but so is expected growth, probable profits and dividend potential. How expectations materialize and whether they are reasonable or off-target are conjecture but knowledge about the company, its industry, innovation and trends can help make a decision. Reading news stories and then thinking about what you read is one way. Additional elements of investing are to have the time to devote to this activity, the knowledge in myriad essential disciplines, the skill to construct a portfolio that will have some balance and provide reasonable risk, and the ability to apply everything to make a decision of what and when to buy and also when to sell, rebalance or prune your portfolio.
In terms of investing, I don’t believe individual investors can get enough of the right information, if it exists, and then be able to properly analyze it. I also believe that once five different stocks are invested in, the investor has created a fund that will perform substantially the same as the group they were selected from. For that reason, I recommend mutual funds, with the mutual funds of my choice being the major index funds.
Awareness of incipient trends is necessary for most things you will do, but for the average stock market investor I do not believe it will lead toward great wealth or above average returns.
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