Being an active investor, we would want to know what is the next big thing, as this is where we can get potentially good returns. Problem is, we mostly know it on hindsight, and it is a bit too late to enter the fray by then. So, before it happens, the answer to the question would be at most a guess, but if we guessed it wrongly, the next big thing may become our next big mistake.
To look out for the next big thing, we need to consider two questions: how to spot it and whether is it long or short term.
Indicators and Signs
On spotting the next big thing, I use two things to suss it out, namely indicators and signs. In my lingo, indicators are statistics, figures and hard data pertaining to the issues at hand, i.e. quantitative, while signs are a bit more qualitative in nature, such as personal observations, user experiences and that subjective “gut feel”.
You may have already used some forms of indicators and signs in your fundamental analysis (FA), e.g. analysing past profit figures or visiting a particular REIT’s retail mall that you are interested in, etc. On researching for the next big thing, however, you may need to go beyond your typical FA scope, as a more holistic view is required to better gauge the possible outcomes. Like my favourite example of e-commerce, not only would you need to consider the impact on brick-and-mortar retailers, but also available infrastructure and user acceptance in supporting it.
Then again, the research is not a guarantee of success of confirming the next big thing, but at least it is a guesstimate with informed inferences rather than pure guessing.
Trend and Fad
I shall use two words that are commonly heard in the fashion industry: trend and fad. According to dictionary.com, one of the meanings of trend is “to tend to take a particular direction; extend in some direction indicated”1, while fad’s meaning is “a temporary fashion, notion, manner of conduct, etc., especially one followed enthusiastically by a group”2.
Translating these meanings to the business world, a trend is where a product, service or paradigm could exist for a longer time and may evolve into something better at the next level, whereas a fad is like a “flash in the pan” and it could just come and go at an instant. On the investment front, trends would bring good returns in both growth and income (i.e. dividends), while fads would give you good short term but non-sustainable returns.
To know whether the current big thing can last long (trend) or just a burst of fireworks (fad), we use indicators and signs to determine which is it. Again, we have to place a caveat on the conclusions even when extensive research is done.
If you have identified the sector/industry where the next big thing will be, you can either screen for the individual companies, or you can go macro by the index way through ETFs. You may also want to consider associative investing3 (i.e. investing in fields related to the targeted one) if investing in the next-big-thing sector/industry proved difficult (e.g. there is no available financial instruments to invest with) or you want to have an additional safety margin should it fail (e.g. a related sector/industry would still be around even if the deemed big thing fizzled). REITs could also provide a form of associative investing; think data centres and logistics hubs in relation to the current big thing of e-commerce.
Last but not least, if you are still not sure of what the next big thing is, and/or whether the current big thing can last long, then it is better to exercise your decisions on a prudent stance.
1 - http://www.dictionary.com/browse/trend (accessed 2 Oct 2017)
2 - http://www.dictionary.com/browse/fad (accessed 2 Oct 2017)