While headlines regarding the ongoing trade negotiations with China dominate, and certainly influence, daily stock market moves, the market’s resilience can most likely be attributed to investor expectations for a second half re-acceleration of earnings growth. More importantly from a stock picking perspective, this anticipation of future earnings performance is predicated on the continuing growth and innovation super cycle currently unfolding.
Over the last several decades there have been a number of these cycles that provided enormous investment opportunities, at least in hindsight. The early 1980’s saw the personal computer upend traditional markets while creating new opportunities. Likewise, the initial public offering of Genentech at about the same time, heralded the biotech revolution and signaled the development of wholesale new industries. The 1990’s was all about the internet and associated technologies that allowed for the disintermediation of about everything, and more recently, the “sharing economy”.
Now we have new developments in healthcare permitting therapies that seem miraculous when compared to standard treatment of care, think gene therapy, new monoclonal antibodies, and new modes of drug development in this regard. At the same time, we are in the midst of an information processing revolution, as most everything becomes connected, is ported to the cloud or the hybrid cloud, is developed using secure technology from things like block chain, and in many cases, deploys artificial intelligence.
Once again, we are upending traditional industries and creating new ones, autonomous driving, for example. We are allowing for new applications that change the way we work, are entertained, and even recreate. The connected world is allowing for opportunities like never before- ride sharing, intelligent appliances, and even a host of dating and social applications. Moreover, it certainly feels like these changes are not only coming rapidly but seem to be accelerating.
So, our mantra continues to be “keep your eyes on the prize and don’t get distracted by today’s headlines”. Use the stock price volatility as opportunity, while still making sure you are comfortable with the risk you may be taking on.