Consumers are adopting new products faster than ever before. Change that historically took decades now occurs in years. Finding industries with growth and staying power is key. You could manufacture the best VCR or horse carriage but it didn't matter when DVD's and cars came along!
Source: http://www.nytimes.com/imagepages/2008/02/10/opinion/10op.graphic.ready.html
A major driver of stock performance is the industry. Whether the industry is in growth or decline can have a significant effect on a stock. We can see this industry effect in Australia with the end of the mining boom it didn't matter which iron ore stock you owned they all fell. Credit Suisse has provided us with some historical charts detailing the impact of industry change. We can see this in the composition below of the USA and UK markets.
Source: Credit Suisse Global Investment returns yearbook 2015
Rail stocks dominated the market with over 50% of total equity value but 115 years later are less than 1% of both markets. New industries such as technology in the US and oil and gas in the UK sprung up to take their place. With change accelerating it is becoming more difficult for investors but over history one thing stays the same. The out performance of so called sin stocks. In the USA the best performing industry was tobacco and in the UK alcohol. Both industries show dramatic out performance of the market. I'm not a big fan of products that potentially kill your customers (smoking) but I definitely do understand the need for a drink when Friday comes around.
Source: Credit Suisse Global Investment returns yearbook 2015
These two industries share many similarities. Both products are addictive and its hard to see how the industry could get disrupted. They tend to have high margins as their input costs are quite low. These products tend to be branded unlike the poorer performing industries like the paper, steel or textile industry where sales prices are commoditised. Some of the oldest companies in the world are involved in the alcohol and beverage industries. We can never know what the future holds but we can be certain that a hundred years from now human nature will remain the same. Drinking, gambling and smoking seem to be a very Australian past time. We're likely to see these so called sin industries at the top of the next hundred year list.
Jason
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.
