Nostradamus 2020

Good Morning,

The new year is in full swing, and it is already a doozy. The US and Iran issues escalated into military actions on both sides, which resulted in innocent people being harmed. The stock markets have been volatile but have continued their 2019 trends by moving to all-time highs. There are tons of short term uncertainties baked within expectations, so maybe we should keep our eyes on the prize. Last week, PBS published an article by Vikram Manshamari about 20 investment themes to think about over the next 5 years. Since investing is more about a long term perspective, this article was timely. The points that I found interesting were:

  1. Passive Investing Bubble Bust (#4)
  2. The emergence of a hypersonic weapon (#6)
  3. Global supply chains shift dramatically (#7)
  4. Medical insurance companies and educators begin to jointly lobby against teenage use of social media (#17)

Throughout this article, Vikram focuses on deglobalization, the shifting dynamics of global leadership, and the evolution of technology. I chose to highlight a couple of themes that I felt would directly impact both Technology and Health Care, which are two of the major industries in the US. On the surface, the first point does not seem to not fit, but the devil is in the details.

Most US index funds have a healthy exposure to tech and health care because these are the two areas that have been the fuel for the longest economic recovery in our history. Index funds have unintentionally become the equivalent of "stock market banks" and per our history classes, we all remember what happens during a bank run. 

I like the diversification that these indexes provide at phenomenal low cost, but the inherent danger of a run on the bank is a risk that we must all keep in mind. These instruments are only as liquid as the underline securities, and if everyone tries to sell at the same time there will be negative repercussions for the stock market.

In closing, I hope everyone reads this article because it provides some great insight into what to think about when creating or evaluating your portfolio.

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