Back in August 2016, I had touched on the concept of associative investing to capitalise on disruptive technology companies, where we could invest in areas that support and/or result from these firms, especially since there is little or no avenue to invest in the said companies themselves.1
The basis for associative investing is simple; all sectors and industries are dependent on one another, and it is making use of these interdependence relationships to carry out investing. For example, if you want to invest in e-commerce, besides e-commerce companies, you could take a look at sectors and industries that are related, like data centres, logistics firms, payment solution companies, etc.
A simple way to carry out associative investing is to draw out a relationship chart (e.g. a family tree or an organisation chart) of the sectors/industries concerned. To draw the lines and fill out the various boxes in the chart, you could get the information from online and documentary sources, personal observations or even logical inferences and deductions. After filling out the related sectors, you could select companies and ETFs that best fit these sectors/industries, and then carry out fundamental analysis on them to pick the right ones for your Bedokian Portfolio.
It is not necessary to name the sectors/industries or their sub-categories if you are not familiar with them. Using the e-commerce example above, you could instead use simple terms such as “computers”, “smart phones”, “delivery vehicles”, etc. in your charting.
Once you get the hang of this relationship charting, you could further modify it by having the target sector/industry in the middle of the chart, with suppliers/supporters on top and consumers/resultants at the bottom, creating an “upstream and downstream” map. You could also include competitors and substitutes, making it like a Strength-Weakness-Opportunity-Threat (or SWOT) analysis.
Associative investing allows you to view the entire economic and market ecosystem, as well as the dynamics amongst them. It could also be used to spot future sector/industry trends, a topic which I will touch on in my later posts.
1 - http://bedokianportfolio.blogspot.sg/2016/08/disruptive-technology-capitalise-on-it.html