It is often said that successful investing involves a fair degree of 'investing for tomorrow, not today'. If you can find a small company today that will grow to become a large company in the future, that's usually where some of the 'real money' is made on the share market.
Buying Amazon.com Inc (NASDAQ: AMZN) shares at US$100 in 2009. Or A2 Milk Company Ltd (ASX: A2M) shares at 50 cents back in 2015. That's the stuff of legend. As such, a significant army of investors out there are always on the hunt for the 'next Amazon'. And finding the next Amazon also usually involves picking a field, a trend, that that company will grow into. It was impossible to envisage Amazon becoming the giant it is today without first understanding all of the potentials that the internet could bring.
But finding a lucrative field isn't as easy as you might first think. Every few years we hear stories about 'the next big thing' in investing. It always follows a pattern too. Investors think they have found 'a new thing' that will revolutionise everything. They then rush out and buy shares of companies that may or may not have something to do with that 'thing'. Then, it usually implodes on itself when investors realise that 'the thing' doesn't actually make any money. This happened with the internet in the early 2000s. The 'dot-com crash' was the result of investors psyching each other up for the unlimited potential of internet companies. It was a 'things really are different now' moment. Until it wasn't. Internet companies spent most of 2000, 2001 and 2002 coming down from those highs. It was only a few years later that the real internet winners like Amazon became really dominant.
Big trends don't always mean big profits
We've seen this paradigm play out over and over again, slightly differently each time. Remember 3D printing? That didn't last long. Or the lithium craze of 2017? Sure, lithium probably will have some kind of supercycle one day. The world is still irrevocably moving towards the electrification of transport, which will require a lot of lithium. But it certainly didn't happen in 2017, when everyone thought it was.
Some successful trends don't even make anyone money at all. Warren Buffett is famous for describing the airline business as a place where everyone loses money. He even once joked that if investors had been at the first aircraft flight, they should have shot it down due to all the money that the entire industry has cost investors. The coronavirus pandemic certainly wouldn't have helped that equation. Think about that though, a massive industry that people from all around the world (used to) use, that makes no money for its investors. That's something you probably don't want to be a part of.
So when you're considering the next investment that you think is poised to benefit from 'a trend', history suggests you think twice. For every one real success story, there are a thousand planes that never make it into the air.
