We are drowning in information but starved for knowledge.
From megatrends to ‘fads’
From an investment point-of-view, what’s the difference between a trend and a fad? That is a very good question because, what to some people may just be a fad is to others a very investable trend.
Let me give you a simple example – cryptocurrencies. When Bitcoin was first rolled out, at least to me, it was a fad. That said, the more I have learned about the concept, the less I think it is. As traditional monetary policy tools (e.g. interest rates) become less and less effective, new policy tools shall be required, and digital currencies could come quite handy there. Only one problem: For any of the existing cryptocurrencies to work as a proper digital currency, policy makers must find a way to reduce the volatility.
The Age of Disruption is one of the eight megatrends we have identified over the years and, ultimately, that megatrend has led us to Bitcoin. Bitcoin wouldn’t have happened without blockchain, though, and blockchain wouldn’t have happened without the digital revolution. In other words, it can be a long and winding road from megatrend to ‘fad’ (Exhibit 1).
Investing in megatrends
What exactly is a megatrend? A megatrend is a profound and longer-lasting change of status quo in society, be it driven by climate change, changing demographics, government policy, new technology or other fundamental socio-economic change.
Most investors, when constructing their portfolio, start by deciding how much to allocate to each asset class and then how much to allocate to each country or region. Megatrend investing is fundamentally different. If you believe, as I do, that we are in the very late stages of the current debt supercycle, but that the end could still be a few years away (debt supercycles last on average about 60 years, so this one is already long in the tooth), you will also agree that interest rates will stay low for longer than most investors believe.
Why? Because interest rates behave very similarly in all debt supercycles. In the latter stages, they are always low, and they remain low for years after the end of the cycle. In other words, adopting the debt supercycle megatrend in your portfolio construction approach implies that any investment opportunity that stands to benefit from a continuation of low interest rates should be considered, whatever the underlying asset class.