Investment specialist Hilary Kramer illustrates how to use population shifts, health statistics and the like to find smart investments. From Ahead of the Curve: Nine Simple Ways to Create Wealth by Spotting Stock Trends
Who is getting older, who is getting fatter, who is getting sicker? Where are people being born? Who’s making the big bucks, and at what age? Where are they spending their money, and where are they choosing to live? The list goes on and on. Out of each statistic, there are many ways you can anticipate how trends might arise and, from this, how you might find companies to invest in and profit from. Where do you find stats like this? Lots of places. Almanacs, the web, Google searches, TV and radio news, government organizations, nonprofits, pollsters, magazines and newspapers. Every day I seem to read a new statistic.
The ways in which populations shift around affect every part of our world — and our economy. Let’s take current demographic shifts as an example. Experts predict that by 2010 a perfect storm of factors will come together. Birth rates in the United States are dropping, the baby boomers will begin retiring, and business will be growing. As a result, we will have fewer workers but more jobs. Some readers may doubt that the boomers will really be retiring, given all the press about how people aren’t saving enough for retirement and will have to work longer. But I’m confident that plenty of boomers, workaholics though they are, will have had it with working. If possible, they will want to cash in on their 401(k)s and have time to do all the things they missed out on while working so hard in their twenties, thirties, forties, and fifties. For those who can’t afford to retire fully, or who get restless when they have excess leisure time, they’ll likely work schedules that give them flexibility, whether in part-time jobs or by freelancing. So, we will likely face a labor shortage, which means that businesses are going to have to fight for the talent pool.
What does this mean for investors? With the predicted labor shortage and traditional head-hunting fees being significant, one can recognize the upside potential of an online employment company like Monster.com. This is one of my favorite businesses. A company like Monster is poised to benefit from a labor shortage. I missed the initial boom in this stock, back when it went public in the late 1990s, mostly because I was worried about an overheated stock market and potential recession, and I feared the job market might tighten for a while. I could have bought at about $10 and would have enjoyed a tenfold increase a year later. This is a good example of the wisdom of not allowing one missed opportunity to sour you on a stock and that there can be good reason to buy it at some later date. I ended up making an excellent return on my money on this one in the end. When the stock fell to $7.00 in 2003 and the economy was bouncing back, I finally bought Monster and have enjoyed a healthy gain of more than 500 percent from studying my stats back in 2002 and early 2003.
At the time, there was a great deal of press about the dismal employment situation, as the U.S. economy wasn’t generating nearly as many jobs as it had been in the 1990s. This, of course, became a central argument in John Kerry’s unsuccessful presidential campaign in 2004. It’s no surprise that investors were pulling out of Monster in 2001 and 2002, sending the stock price down from about $60 to below $15 (and eventually below $10) in a little over a year. My response to this drop, and to a little bit of research, was to realize that an opportunity was emerging.
For one thing, Monster’s revenues had actually remained strong in 2002, suggesting it could weather a tough employment situation for a while. I felt the huge tax cuts of 2001 would jump-start the economy soon, and that Monster’s services would soon be in demand again. So I looked into the statistics a little more, and realized that many of the financial companies were starting to regain their confidence in the economy and to invest again in new companies, particularly in new technology companies that constituted what would come to be known as Web 2.0. Plus, the hedge funds were doing extremely well and private equity was heating up. This suggested to me that there would soon be demand for the kind of technology and financial jobs that Monster is especially strong in filling.
I bought the stock at $10 in February 2003 and waited for other investors to catch up. Sure enough, after dipping a bit further and making me wish I’d waited longer, Monster’s stock started to rise in a few months, and it got just below $29 before the end of 2003. By January 2006 it was at $47. I missed my chance to sell then, before the stock dipped to $40, because I was still bullish on the company’s prospects. After a few more months, the stock climbed back up to $50 at the beginning of 2007, and I decided to sell when I started to see statistics suggesting the economy might be cooling off a bit. I could have made more, but I ended up with a 40 percent profit in just three years, not too shabby.
ABOUT THE AUTHOR
Hilary Kramer, a global investment specialist and author of Ahead of the Curve: Nine Simple Ways to Create Wealth by Spotting Stock Trends (Copyright © 2007 by Hilary Kramer), is the former Finance Editor of AOL and also serves as the AOL Money Coach. Her expertise in investing spans more than twenty years of experience in equity research, asset allocation, and portfolio management. She graduated from the Wharton School with an MBA, and within a decade she was recognized as one of the best equity investors on Wall Street and had amassed a personal fortune of more than $10 million. She has since then devoted her energies to helping individual investors apply the simple secrets that she used to bring her wealth and freedom from financial worries. She appears regularly as a commentator on the Nightly Business Report on PBS and has provided market commentary to The Wall Street Journal, Fox News Channel, ABC, Bloomberg, and CNBC, among others. Hilary also appears daily on the nationally syndicated radio show Doug Stephan’s Good Day. She has held directorships in both NYSE- and NASDAQ-traded companies and, from 1994 to 2002, was the senior managing director of a $5.2 billion global investment fund with both private equity and publicly traded securities.
- Read Chapter 1 of Ahead of the Curve: Nine Simple Ways to Create Wealth by Spotting Stock Trends
- See the book’s Table of Contents