Broker Check

The Only Constant is Change

November 30, 2022

As I grow older, I'm learning to appreciate the nostalgia. The brain doesn't deal with change very well. Case in point:  when your life gets out of sorts, how good do you feel when you get back into "your routine"? How often have we seen a baby become grumpy because they are out of their routine? It happened too many times to count for my children (it still does, and they are grown!). 

Maybe that is why I'm clinging more to nostalgia these days than I ever have – I'm not too fond of change. But then again, change is what the world does, and it does it very well.

The problem with change is that it comes with unknowns. Any unknown is an enemy to the brain. It causes panic, which means that making bad decisions can't be far behind. 

I can't help but think of bad decisions and their effect on the long-term investor.

The modern world is changing more rapidly than at any point in history. The reasons for this new world order are many. Still, the effects are the same – change brings opportunity, especially if the long-term patient investor recognizes it.

Thirty years ago, when the Soviet Union collapsed, Germany was reunited, and China became America's go-to, low-cost manufacturer – the economic outlines of the post-WWII world were redrawn. That created a huge investment opportunity for the patient long-term investor.

In today's whole new world, Russia and China have become pariahs. Russia's mad czar has decided to go all-in despite world opposition and singlehandedly decided that Western Companies are no longer welcome, to which many gladly obliged and took billions of dollars in write-downs.

Meanwhile, China is facing a demographic catastrophe following its decades-long one-child policy. Over the next decade, China has been estimated to lose 70 million working-age individuals while gaining 120 million senior citizens. Supply chain issues created by a zero-covid policy (One could argue that it's impossible to achieve) are reorganizing manufacturing supply chains around the globe. 

Today, more U.S. companies are looking to repatriate their supply chains, particularly with chips. Global companies seek investment in relatively safe and growing environments. 

While labor costs may be a headwind for these companies looking to overhaul their supply chain woes by using U.S. labor and facilities, the growth of automation and robotics may help keep a lid on those costs. And lest you think that automation and robotics are a terrible thing for labor, the amount of expertise and high-paying technical jobs needed for service and development of that automation will surely help to increase our overall standard of living here in the U.S. 

Long-term investors should be excited about the potential investment opportunities that the oncoming demographic wave presents. Eight billion people around the globe will rise to a new day tomorrow and start thinking about the best economic decisions they can make for themselves and their families with the best resources available to them. 

The middle class is expanding rapidly; according to the Brooking Institution, 1.6 billion people will enter the middle class in the ten years from 2020 to 2030. They are going to need technology, resources, and services. The great companies of America will compete with the rest of the world to bring those 1.6 billion people the products and services they need and want.

It's all right in front of us.

So yes, the world is changing. Should investors decide against building a long-term, broadly diversified portfolio of high-quality companies because they are afraid of the world changing, they could fall short of their goals. While the underlying value of your portfolio may ebb and flow, the long-term view has never looked better.

Stay the course, my friends.