in today silver morning, I’m going to share with you three “exponential” sectors I’m looking at right now and why today’s markets are a good time to look into them. I’ll also share with you a key feature of the reality of investing that many investors, including the great ones, miss. I think this is something that will have a huge impact on your portfolio over the next decade.
Dear reader,
I’m not going to bore you today with the latest “will they, won’t they” on central banks, interest rates and inflation.
Over the weekend, I remembered that being a “Fed watcher” had never been a way for me to make a lot of money in the markets.
My specialty is tracking exponential trends.
Simply put, I love coming up with new ideas with huge potential for growth.
Not only does it take you to the most interesting frontiers of science, but when you do it right, you can also make a lot of money.
That’s how I’ve invested for the better part of two decades, and I’m following a pretty simple thought process that I’m going to share with you today.
I’m also going to show you three “exponential” sectors that I like right now.
But the key to this investment methodology starts with a concept that you must realize.
Let me explain…
It’s your edge
Everyone knows it, but few do it.
When markets are down and fear is at its peak, it’s often the best time to start investing in your favorite stocks and sectors.
You don’t have to do it all at once.
My favorite approach is to “stagger” – a form of dollar cost averaging – at different price points to take advantage of panic sellers.
This way you can add great stocks on the cheap when others start to get irrational.
Indeed, the market is so short-term in its thinking that being able to look ahead one or two years is a huge advantage for ordinary investors.
This is your big advantage, especially compared to professionals who usually try to make sure they are not underperforming too much each quarter.
You see, if they do that, investors take money out of their funds and they lose fee income.
Their short-term interests do not allow them to make long-term strategic decisions.
But you can…
And in turn, take advantage of the fear in the market right now as they are forced to sell.
But let’s go back a bit.
How to find stocks with exponential potential?
Here’s how I go about it…
The Law of Accelerated Returns
Now, it goes without saying that chasing exponential stocks is risky business.
And often – but not always – that means playing in the small cap sector of the stock market.
This means that companies have a market capitalization between $50 million and $500 million and they usually have no profit or even revenue.
Snobbish investors are turning their backs on these stocks and saying it’s just speculation – not “real” investing like they do.
This is true to some extent…although I would say that all investing is a form of speculation.
After all, the future is unknowable.
And this stifling view ignores a feature of reality that has itself grown exponentially over the past two decades.
Namely, the rate of change brought about by technology.
It’s faster than ever.
In fact, it’s accelerating.
Famous futurist Ray Kurzweil called it the Law of Accelerated Returns.
He wrote:
‘An analysis of the history of technology shows that technological change is exponential, contrary to the “intuitive linear” view of common sense.
‘Thus, we will not experience 100 years of progress on the 21st century — it will be more like 20,000 years of progress (at the current rate).‘
His intuition on this subject is already beginning to be confirmed.
And besides the obvious societal implications, the implications for businesses – and therefore investors – are profound.
This means that many business models will be rendered obsolete much faster than before.
It will increasingly be a world of adapt or die in which companies live.
And investors who lack the ability to think “exponentially” will also likely be left behind.
Clinging to old patterns that don’t reflect reality.
It’s already happening…
I mean, think how even an investor as smart as Warren Buffett missed the rise of Google, Apple, Facebook and Amazon.
To be clear, these are not just any four companies. These are four of the most valuable companies on the planet over the past decade.
All missed by one of the great investors…
Anyway, my point is if you can get yourself out of the here and now and incorporate exponential thinking into your investment decisions, then this down and fearful market is a time of huge opportunity.
The cheaper it is, the more extreme your upside potential as certain technologies advance.
But where to look?
Here are three exponential sectors I’m loving right now
The first standing…
Cannabis scholarships.
Yes, I know it was fashionable a few years ago. And I know they’ve been broken for the past 18 months.
For example, the Advisor Shares Pure Cannabis ETF – with the aptly named ticker “YOLO” (slang for “You Only Live Once”) – is down about 85% from 2021 highs.
But as you can see from the chart, it is finally starting to bottom out.
Now, the thing about cannabis – and most exponential stocks – is that they often follow this kind of two-step rise.
First, there is the hype stage as the industry enters the public consciousness.
Unfortunately, the research realities prove slower than the initial excitement, and you get a big sell as we’ve seen here.
But if the breakthrough is real – and I think cannabis is going to cause a stir at some point – then the second stage may be even better.
Because it’s driven more by fundamentals than hype.
And on that note, it looks like we may soon have some wind of regulatory support in cannabis, too.
As International Banker wrote earlier this year:
‘…the cannabis industry nevertheless shows immense room for growth in 2022. Arguably the main driver of this growth is the wave of legalization actions for adult use and for medical purposes across the United States, including in Large and heavily populated states such as Connecticut and New York.‘
Either way, with a bottom starting to form on the charts, potential for more regulatory approvals, and a slew of medical studies on their way to the approval stage, I don’t think it’s is not a bad time to start implementing some actions here…
Second place…
Biotech… or more precisely, synthetic biology (synbio).
There has been quite a bit of buzz surrounding this industry in recent years.
It represents the intersection of biology with computer science, artificial intelligence and engineering.
The goal is to accelerate biological research and enable scientists to create tailor-made solutions at the DNA level.
It could do incredible things.
As the great Steve Jobs said towards the end of his life:
‘I think the greatest innovations of the 21st century will be at the intersection of biology and technology. A new era begins.‘
Indeed, it has already started…
The synbio industry came into its own during the COVID crisis, enabling the creation of Pfizer and Moderna vaccines (known as RNA vaccines) with astonishing speed.
Either way, with this huge leap forward under its belt, analysts expect the industry to see an astonishing 25% growth through 2027 and beyond.
Lately…
Artificial Intelligence (AI).
No industry has the potential to disrupt so much in such a short time as AI.
There are the large-scale, complex tasks – think of AI systems controlling a world of automated devices, including cars, drug design, and perhaps even the invention of new products.
But there are also more mundane jobs in the line of fire.
Consider these recent photos created by AI image generation models such as DALL-E 2 by OpenAI when asked to generate a “colorful alcoholic cocktail”:
Professional food photographers and Instagram wannabes are shaking in their boots!
I shouldn’t be too comfortable myself, mind you, because I’ve also met This site which offers “AI writing capabilities”.
Either way, the scale of the AI disruption is what makes it such an exponential space to watch.
And big companies like Google and Amazon are investing in AI capabilities.
But you can also find smaller companies in various niches of the AI space, including robotics, quantum computing, healthcare, and materials technology.
Three ideas to chew on…
Or, if you’re looking for specific recommendations for some of these exponential trends, check out myself and Ryan Clarkson-Ledward’s work on Exponential equity investor.
Good investment,
Ryan Dinse,
Editor, silver morning