Potential investing in the Future: Robotics and Automation

Investors,

 As you all have heard over and over again, investing is a patient man's game, as it is incredibly difficult to stock pick with consistent winners as a day trading individual investor/trader. However, a big part of investing is about getting in the game before others do, or before herd mentality kicks in. Look at the late 90s and early 2000s when internet and dotcom stocks were booming. Not many people really knew what to do with all this "dotcom" talk, but everyone knew they wanted a piece of it, as its sector in the stock market seemed to consistently never lose. Of course, what goes up, must come down and the dotcom euphoria shot down hard, as people lost fortunes in the process. But what about the people who got in before everyone in the public started talking about these so called "dotcom" companies? What if you thought this whole dotcom thing was a pretty genius idea and you invested your money into it before crowds of investors got in and sold before the bubble burst. While it's hard to sell when a company you own is skyrocketing through the markets, sometimes you need to be wary when everyone on the news or all your friends are telling you to get in...that might even be the time to get out! Nonetheless, as simple as it sounds, it's about buying low and selling high. Some people rode the dotcom wave and made killings, while some didn't have the discipline to sell, or bought in too late, put all their chips on red and lost fortunes. Which leads me to my point for this post... an industry that I believe is just getting started: Robotics and automation.

 

 President Trump claims he wants to bring back jobs to America as so many US workers especially in the manufacturing industry have lost their jobs to offshoring. Companies offshore to other countries, especially third world countries because wages are a lot lower than in the US...it is a lot cheaper to manufacture overseas than it is domestically. Companies want to allocate their capital as efficiently as possible, so they prefer manufacturing goods outside of the US, which is why we rarely see "made in USA" on tangible goods. We offshore a ton of work to Mexico because wages are lower in Mexico, they have relatively decent production standards and the North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico allows for the gradual removal of tariffs on goods traded between the countries. 

 

 But wait a minute...Trump wants to build a wall on the US-Mexico border and also wants to bring jobs back to the US by employing more American workers. The con to that is that companies (and a lot of companies offshore to Mexico) will be forced to rethink how to allocate their capital efficiently, as mentioned before. Before they offshored work to Mexico and other countries because it was cheaper that way. Now they will be forced to base their production in the US, which is not so cheap for companies as wage rates are higher. Therefore, companies have two options: 1) They can lose money that they didn't have to worry about before by employing a myriad of US workers or 2) They can rethink their strategies and look to automation and robotics as a cheaper and more efficient way to avoid the increased costs of employing US Workers. That doesn't mean no US workers will be employed in the manufacturing, retail, truck driving fields (a few of the job fields that could potentially be hit the hardest), for surely US workers can complement the automation. I don't think Trump and the myriad of jobless Americans looked far enough into the future to see that automation is coming and its coming fast. Trump promised jobs, but companies need to make money and if it means turning to automation for more efficient and cheaper labor costs to produce their goods, undoubtedly they will. 

 

Furthermore, overseas automation is moving even quicker than the US, especially is China and Japan. I don't recall the exact statistic, but from 2015 to the beginning of 2017 China employed more than 3 times as many robotics in their workplaces than did the US and the number is growing. Japanese and Chinese Robotics firms are already being called upon for their parts to be used in the US for myriads of jobs in order to increase productivity and gain comparative advantages in the US.

 

While scary to think about, robotics and automation are nonetheless coming fast, if you do decide to invest in this sector, don't become a fool like the dotcom junkies. Do your research.

 

https://www.credit-suisse.com/us/en/articles/articles/news-and-expertise/2016/09/en/welcome-to-the-future-investing-in-robots.html

http://www.wyattresearch.com/article/investing-in-robotics/

https://www.usatoday.com/story/tech/news/2017/02/20/cuban-trump-cant-stop-rise-robots-and-their-effect-us-jobs/98155374/

 

Recap: KP Investment Club Meeting

During our last meeting, we talked about stocks vs. other investments, investment vehicles, and market timing. Next on the agenda is portfolio diversification.

Here is a link to the PowerPoint slides (KP Investment Club Meeting Slides). I added additional details in order to convey a similar message to the one presented at the meeting.

 Thanks. Matt.

History, Volatility, and the Key to Successful Investing

Recently, I ran across a good article on Investopedia titled "Portfolio Returns: What is Reasonable to Expect?"  It addresses historical returns of the S&P 500, volatility, and staying to course as an investor.

Here is my quick take on the article:

As an investor, you must learn to stay the course during periods of market volatility. By researching history and embracing volatility, investors are able to stay to course and know that such market events occur regularly over time but don't last all that long.

Knowing enough not to panic when markets drop ~10% or so every few years is one fundamental aspect of personal investing success. And understanding that the power of compounding (the rule of 72) can help you accumulate lots of assets down the road is also a fundamental aspect of long-term oriented successful individual investing.

Regarding market timing, here is a great excerpt from the article:

"Over the 20 years from 1996-2015, an investor that stayed fully invested in an S&P 500 index with zero changes to their portfolio would have enjoyed a 6.44% annualized return. To put that in investment terms, a $100,000 investment would have grown to $348,347 over this 20-year span. By missing just the 10 best performing days of the S&P 500 during this same time period would have diminished your annualized return to 2.81% annually and left you with $173,979 in that same initial $100,000 investment. This is the powerful effect that poor market timing can have on your nest egg."

Here is a link to the article: Portfolio Returns: What's Reasonable to Expect?