Have you ever thought investing was easy?
I sure did.
And I think it’s about to get easy again.
That’s whether this rally ends tomorrow. That’s if the major indices plummet back to previous lows and beyond. That’s if the markets really did hit “the bottom” back in March.
I truly believe we’re facing the investment opportunity of a lifetime, regardless of where the markets are headed over the next couple of weeks, months, or even years. This is one of those, “hmmm, investing is easier than I thought” kind of opportunities.
I’m talking about an opportunity to create true financial independence. That means not having to worry about your job, your retirement account, or a sharp increase in taxes, because there will always be plenty of money to do what you want when you want.
But let me start at the beginning.
Investing is Easy, Right?
When I first started investing I was amazed at how easy it was. The first stock I bought was in a bank with a yield of 7%. I thought that was a good payoff. As dumb luck would have it, the bank was bought out three weeks later for a 40% premium.
I was unknowingly proof that it was better to be lucky than good. All I could think was, “Why do people work? Why don’t they just invest?”
After banking some quick gains, I quickly caught onto the “buy what you know” philosophy. As a young person in the 90’s, computers and the Internet were becoming integral parts of my life. When it came to research for schoolwork, e-mail, instant-messaging, or selling some stuff on eBay, I was living in the Internet boom.
So when it came to investing in what you knew, I quickly turned to the Internet. And it couldn’t have been a better time. For a few years I rode the Internet bubble to stratospheric highs.
Of course, I felt no need to study the markets. I just bought what I knew. And that was Amazon, eBay, Microsoft, and other stuff like that. It all paid off – extremely well.
Learning Lessons the Hard Way
That all changed when the dot-com bubble burst. Stocks quit going up 10% a day. My account was literally shrinking. I thought the markets were broken.
I was undertrained, inexperienced, and overconfident – a dangerous combination when it comes to investing. And I paid a very high price for it.
Since then, I’ve learned a lot about investing (including what “going short” means and what a put option is – the only salvation I had from the tech bubble). But in 2002 and 2003, nothing was working. The market had no direction. My broker, who was 73 at the time and truly had “seen it all,” told me this is the time to buy stocks.
Naturally I argued stocks were going nowhere. But he convinced me that no one was paying attention so you can buy things very cheap. He told me to picture myself at an auction with no other bidders. Thankfully, I did.
He told me to read newspapers. Not for news, but to read how people were making money. And to do what they were doing. He told me to find something big which can run for a while and go for it.
Where I saw people making the most money was in banking and real estate. So I started getting back into the markets. I bought investment banks and mortgage brokers (which yielded 15% to 20%) at the time. Those people seemed to be making a lot of money and stocks were a way for me to get in on the action.
As you might expect, it was a pretty good ride. This time though, I wasn’t about to let overconfidence ruin years of effort and time (which I actually put into investing after the tech bubble). It’s tough to forget lessons learned the hard way, you know.
The upside potential seemed very low and the downside risk seemed pretty high. After the Fed meeting in November 2007 I closed out my remaining positions in those sectors. So much focus on the Fed didn’t make any sense. If business was getting tough, there isn’t much the government can do about it.
Since then, I’ve been searching for the next big thing. I want to get on that next big wave which creates massive amounts of wealth. After going for a ride in tech stocks, then in mortgage and financial stocks, and now…now it’s time for something just as big. This time around though, I think the upside is even greater in healthcare.
Riding the Next Wealth Wave
It’s no secret the U.S. (and the world as a whole) is getting older. The baby boomers are inching closer to retirement age en masse and the healthcare system is still getting ready.
It’s not just an aging population to be concerned about though. There’s also a severe growth in chronic diseases and conditions like diabetes, arthritis, hypertension, and dementia. Currently 90% of people over age 64, two thirds of people between the ages 35 to 64, and one third of adults aged 18 to 34 suffer from at least one chronic disease or condition.
The big concern for chronic diseases and conditions is that they far more costly and time consuming to treat. In fact, chronic disease treatment accounts for 75% of direct medical care costs in the U.S.
There are other considerations, but those are the two big ones. And they are expected place overwhelming demands on the U.S. healthcare system.
We’re hardly at the beginning of this trend though. It’s been growing for a while. Health care accounted for seven percent of GDP back in 1970. In 2007, after 37 years of relatively consistent GDP growth, health care spending now accounts for 16% of GDP. That’s nothing compared to what is coming though.
In the next 10 years many estimates peg the percentage of GDP spending between 20% and 25%. Sure, some of the growth is from inefficiency and bureaucracy. The majority of it though will come from simply more demand from an aging population.
The Bottom Line on Ballooning Industries
To look at this from an investing perspective, we can look at what happened when other sectors took up more and more GDP and how the market anticipated it.
A few months ago, we looked at the importance of sector weightings of the S&P 500. In Good Things Come to Those who Weight we identified how to identify bubbles as different sectors grew to account for larger and larger parts of the S&P 500. We noted:
In 1980, at the height of the oil and commodities boom, energy sector stocks made up 25% of the S&P 500’s total value. At the time, oil prices were setting new highs and investors were flocking to oil stocks. They bid energy stocks up to the point where they made up one quarter of the entire S&P 500. It didn’t last.
The same is true for the financial sector. Financial services made up a lowly 6% of the S&P 500 in 1980. After two decades of across-the-board double digit earnings growth (which we are now seeing how they made those earnings) they formed kind of a “silent bubble” and accounted for more than 20% of the S&P 500 in the past few years. Now, [the “silent bubble”] has burst and financial sector stocks, as a percentage of the S&P 500, are working its way back to historical norms.
Then there are tech stocks. During the height of the tech bubble in 2000, the technology sector made up 30% of the S&P 500. Again, completely unsustainable.
If you relate these numbers back to GDP, it’s not hard to see a strong correlation. Energy was a big part of the economy in the 70’s. Tech was a huge part of the economy in the 90’s. Banks and the financial sector were monstrous in this decade.
Considering the growth ahead of the healthcare sector and the way the market will eventually begin to anticipate the amount of growth ahead, there could be a monstrous bubble in healthcare stocks down the line.
We hear the term “mega-trend” tossed around a lot. The growth in healthcare demand is definitely one of them. There are so many factors at play here that blindly dumping money into healthcare stocks will not allow you to take full advantage of the opportunity we’re facing. This is the time to do more.
The Difference between 100% and 1,000% is More Than One Digit
Now, to say catching this wave is going to be easy is probably a bit of an understatement. I paid a high tuition price to learn that investing isn’t always easy. But in this case, the hard part is figuring out which companies are going to do well and which companies are going to do great.
To go back to my former “seen it all” broker (he has since retired), he convinced me to buy ExxonMobil (technically, it was before the merger with Mobil) when oil was greatly out of favor. When I sold out of ExxonMobil in the first part of 2008, I was sitting on a total return of about 150%.
Not bad. But it was nothing compared to what I could have made as oil climbed from $20 to $147 a barrel.
If I would have done the homework necessary, put in the effort to find out which companies were going to do well and which were going to great, I would have done much better buying the junior oil company or the offshore oil service company which no one ever heard of. That would have meant the difference between a 150% return and 1,000% or higher.
I’m not about to make the same mistake this time. I have the investing experience and knowledge, a true understanding of the principles of risk and reward, and the right industry contacts (we’ve got a conversation with someone very special coming up for you this weekend), to make this a homerun experience.
Now is the time, if you’re looking into healthcare, where you’ll find investing to be easy once again. And this wave is so strong it won’t matter too much about where the markets are going from day to day. To me, healthcare will offer a low-stress way to invest successfully for years and years ahead.
By Andrew Mickey