Columbus and Stocks?

Some economies and some companies will emerge from the current financial mess stronger. Some will fade away. For the long term investor prediction and an appreciation of the very long term for growth stocks will be key. What will be the growth stocks for the really long term? The money behind the infrastructure that preceded the voyage of Columbus is a distant but useful example of disaster followed by technology transfer and world changing success.

A hundred years before Columbus sailed Christian Constantinople fell to the Muslim Turks and became Istanbul. Venice and other Italian city states lost their trade routes out of the Orient but still had large navies and merchant fleets that policed and traded across the Mediterranean. So what did they do? They sent sons and nephews, expertise, and money to the far end of the Mediterranean and established trade routes along the African coast culminating in the voyage of Vasgo de Gama around Africa to India from 1497 to 1499 and the voyages of Columbus and the conquering of the “New World” from 1492 on.

Take Home Points

Those who do not accept defeat often win in the end. A secure investment may well fade away and the correct “growth stock” may be the best bet ever.

In times like these, watch where those who have money are putting it and watch where they are putting their “growth stock expertise.” As US Homeland Security has effectively closed US borders to a lot of foreign born scientific talent that talent and money will go elsewhere. Already we are seeing many foreign companies with more US patents per year than any US company except IBM. The secure investment in “safe frontiers” may well deny the US the ability to develop the best growth stocks for the long term.

The investments you make in the goals you can imagine often result in unforeseen riches. Engineering and production cycles for new products have become shorter and shorter but when a new concept shows up it changes the world. Think of personal computers and genetic engineering. The point here is not to try to outguess the scientists but to watch who has the talent and where the money is going. Although Europe continued to fight the Turkish advance for a couple of hundred years as its secure investment it invested in the growth stock of American exploration and conquest which changed the world.

Thoughts about Today and Secure Investment versus Long Term Growth Stocks

We have made the argument on these pages that buying US treasuries, especially short term ones, is a secure investment for the coming months. We are seeing advice in the press that the best long term secure investment is to sit on your money. I read that as Venice letting its fleets rot and sending its sailors home to farm.

Where is the money going for R&D? Where are the best and brightest scientists going? Where is the culture conducive to independent thinking and the discovery of world changing ideas? I read this as Venice sending its expertise and money to the other end of the Mediterranean and jump starting the exploration that gave the Americas to the European culture. I read this as Korea, Taiwan, Japan, Great Britain, most of Western Europe as well as India, China, and the rest keeping their scientists at home and developing the ideas for growth stocks for the future.

The promised investment in US infrastructure is a good sign for growth stocks at home.

The question we pose is which stocks, which stock market sectors, which technologies will not only recover lost ground but will prosper as the world wide economy rights itself. For that matter if we are in for a long term depression the same questions apply.

Growth, Earnings, and Expectations

It may be hard to envision now but in a few years we will have another market surge with another set of reasons given as to why, this time, the bull market will go on forever. Then, of course, we will get another correction.

The market moves based on short and medium term expectations. Stable, slow growing stocks tend not to do as well in bull markets as those expected to grow dramatically over the next months. However, the more stable companies tend to weather the storm better. They tend not to lose all of their value when the market collapses. Now we need to ask ourselves which long term investment stocks will grow over the long term?

Oil and Supporting Businesses

According a New York Times article, “The Great American Drilling Boom,” is over. As the price of oil has dropped people have quit drilling for new oil In fact many with newly found oil are capping the wells, waiting for prices to go up, before they pump again.

Smart shorter term investors got out of the stocks of companies that drill for oil or make the equipment needed for drilling. They got out as oil prices started to drop.

For the long term we have to ask ourselves if oil prices will stay low and if the industrialization of China and India will go away. It seems unlikely that the two big Asian economies are going to decide to go back to a quieter, less prosperous life. Thus, as India and China deal with their own credit problems, create their own stimulus packages, etc. we will likely see their usage of raw materials go up again. Then the mining will restart in Australia and global demand for oil will go up again.

Maybe big oil will find its profits cut but that never seems to happen. There will always be charges to be made for finding, drilling for, transporting, refining, and selling oil products.

Now that prices are down the smart long term investor will look at who has all of those capped wells and look for deals in companies who drill for and/or transport oil and natural gas.

Housing

The other matter is all of those foreclosed mortgages. People need places to live. There is going to be an increasing glut of repossessed homes. Since real estate is location, location, location buying property or stock in companies that buy property in prime locations, renting for the time being, and, then selling as the market moves up in a year or so, looks attractive.

In general very long term investing tends to look at companies that cater to long term human needs, such as food, medicine, fuel, communication and the like. Good or bad times companies dealing in these areas do not disappear and right now probably are selling at a discount.