Investors benefit by spotting new economic trends and investing in them before the rest of the population does. By keeping his position and not being overly active, a savvy investor might achieve significant percentage gains.
Back in the 1970s, I invested in KinderCare, a chain of child care centers. It attempted to make them as consistent as McDonald’s hamburgers. KinderCare appealed to the baby boomer generation, which was having infants left, right, and center. At the time, half of my acquaintances were expecting babies. In the United States, a huge societal transition was taking place, with women going to work in historic numbers.
KinderCare’s shares climbed on the crest of a new social trend as someone had to look after all those two-income families’ newborns.
Long-distance phone calls used to be a monopoly for AT&T. Then, in the late 1970s, MCI, a small aggressive upstart, won a legal struggle, allowing it to compete with AT&T. The age of deregulation had arrived, and MCI, the first company to break the rules, had sold for $3, giving yet another fantastic opportunity to jump on board a new trend.
A few years ago I flew to New York from the Caribbean with my friend George. He became a millionaire by buying $30,000 worth of Dell stock before most people had heard of the company—and unloading it at the top three years later with the help of technical analysis. Sprawled in his first-class seat, George was perusing several investment advisories, trying to lock in on the next trend in Internet technology. How right he was! Within a year Internet stocks were flying, defying gravity.
That’s the lure of investing. If you can buy a chunk of Dell at $4 a share and cash out at $80 a few years later, it is easy to fly down to a resort for a week rather than sit in front of a monitor watching every tick.
What are the disadvantages? Investing requires a great deal of patience and an immense supply of self-confidence. To buy Chrysler after it was rescued from the brink of bankruptcy or Internet search engines before anyone knew what those words meant, you had to have a huge level of confidence in your ability to read the trends in society and the economy. All of us are smart after the fact; very few are smart early in the game, and only the tiniest percentage has the emotional strength to make a large bet on their vision and hold on to it. Those who can do this consistently, like Warren Buffett or Peter Lynch, are hailed as superstars.
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