I saw a nice chart that illustrated the point of following the long term trends. This ties in with Long Valuation Waves where the p/e of a mature market tends to ride up and down over a time scale of one or two decades. Last time I wrote about this I mentioned the roughly inverse correlation between energy consuming and producing companies. The 1965-1983 period was good to energy producers and inflation bets (gold), the 1983-2000 period was good for energy consumers since energy was cheap.
Another way to view these long cycles is that there is always a decade long bull in something. If you invested $35 in gold in 1970 it was worth $627 in 1980. Put that into the Nikkei until 1990 and it was worth $3,548. Put that into the nasdaq until 2000 and it would be worth $35,105. Finally stick that in oil and it’s now worth $159,591.
Those weren’t insanely hard trends to spot. Of course, you’d probably be hedged to some extent on a couple of major plays, but in general I still love this strategy. Currently I think the trend for the 2000-2010 period is oil/gold, although emerging markets have been a pretty handy place to be. I think the trend for the 2010-2020 period is likely to be renewable energy and energy efficiency, but again China could be useful. For 2020-2030 the trend may be back to consumption once a new global energy infrastructure is in place.
