On Sunday night, I had dinner with my kids, now 20 and 23, and my grandmother, still rockin' it at 89. It was our last "meatloaf" night at her current apartment complex. In a couple weeks, she will be moving into an independent living senior community.
I remember spending days at my grandmother and grandfather's house on the west side of Milwaukee. I remember the milk chute, an antenna on the roof, a telephone with a long cord and a black & white TV - a second television that served as a reminder of how upper middle class they were. I also remember being locked out of the house with my parents and their friends, and being pushed through a bathroom window so that I could unlock the door from the inside - there was no key code.
After dinner Sunday, I listened to my 23 year-old son helping my 89 year-old grandmother change her passwords in order to sync her iPhone with her iPad with a new Google (GOOG) account. Wow.
The "Smart Everything" World Comes With A Warning
I relate that story above, because, to me, it demonstrates just how fast things are changing. In just half of one lifetime - hopefully I'm only about half expired - we have gone from copper wired wall mounted telephones to having portable supercomputers in comparison to what NASA used to get to the moon. What is coming next is off the charts.
I know that many of those younger than me, the Millennials, do not quite understand the accelerating rate of change that is occurring. They have lived technology their whole lives. It is their reality. Whatever is next, is just next. Most of them don't remember a telephone that was attached to a wall.
That obliviousness comes with pluses and minuses. The Millennials with tech skills are pushing for ever more technological progress. Those without tech skills are buying what the tech creators are selling. It is a sort of virtuous circle to the extent that lives are improved.
I think this push for change should come with a warning though. I have sensed a lack of respect, or even knowledge of history, from the group that would save the world - if you have read The Fourth Turning, you know of what I speak. This disrespect or ignorance, when combined with rapid technological advancement, could have serious adverse consequences.
I point no further than the complete lack of privacy that has invaded almost all of our lives. This lack of privacy has come with abuses which we don't even have laws for yet. We can only hope the laws written to protect us, are not written by the highest bidders.
An even more ominous warning, recently came from famed scientist Stephen Hawking, who died a few months ago. Here is a man who beat a disease - ALS - for five decades, that was destined to kill him, according to doctors, within 3 years of diagnosis. Many people, including me, believe Hawking survived using his brain power and will. His warning, beware the smart machines, we might tell them to kill us on accident.
Before I list some of the "smart everything" technology trends that we can make a lot of money in, I would like to put out a flashing yellow light. It is important that we avoid a low probability, but high impact event, that could do the exact opposite of improving our lives.
A few years ago, Hawking did an "ask me anything" Reddit thread in which he answered questions about technology and the future of humanity. I think it is worth your time to read. Here is an answer to a professor who asked about the "terminator scenario" with Artificial Intelligence:
"... The real risk with AI isn’t malice but competence. A superintelligent AI will be extremely good at accomplishing its goals, and if those goals aren’t aligned with ours, we’re in trouble. You’re probably not an evil ant-hater who steps on ants out of malice, but if you’re in charge of a hydroelectric green energy project and there’s an anthill in the region to be flooded, too bad for the ants. Let’s not place humanity in the position of those ants. Please encourage your students to think not only about how to create AI, but also about how to ensure its beneficial use."
The Biggest Coming Trends In Technology
As part of my money management process at my investment firm, which I teach to members of my investment letters, I employ what I call the "Core 4 Investment Method." The first part of this process is to identify the most powerful secular trends. Once identified, we can search for investments within those trends.
There is no doubt that, in general, technology is the biggest secular trend impacting mankind. Within that massive trend are many sub trends that offer investors potential life changing gains. Here is a "smart everything" list that very briefly covers many of the best places for investors to look for opportunities:
Internet of Things: The ability to move data, commands and communication reliably and quickly is the backbone of smart everything. Conquering the latency problem, think buffering, is about to happen. 5G, Li-fi and a web of connections enabling machines to talk directly to each other will expand networked systems. This will lead to smart apps doing the heavy lifting of analytics so that users can devise ways to apply the insights.
Edge Computing: This is the so-called cloud killer, sort of. While centralized data storage will still be a core feature of the smart everything world, the decisions that machines make will be not in the core of cloud, but at "the edge" where the decisions need to be made, near users. Smart interfaces between devices, users and data will become more creative, adaptable and functional.
Blockchain: While cryptocurrencies get the bulk of the attention with blockchain, I think the ability to protect communications between devices will become the primary application for blockchain. It's incorporation into the IoT will bring a far higher level of security and ability to track shipments, inventory and transactions. Think of blockchain as a decentralized, ledger style database with extreme security protocol that moves data from user to user.
Artificial Intelligence: AI is getting better by practicing (cue Allen Iverson). The practice is in the form of algorithms that allow machines to learn. While Sophia, an AI robot granted citizenship in Saudi Arabia, is busy arguing with Elon Musk, the rest of AI is slowly, but on a fast bending curve, advancing. In the next year or two, most technology will have some sort of AI incorporated, ask Alexa or Siri.
Augmented Reality: AR is not the gaming realm that I think many people believe it is. Augmented reality will have probably millions of commercial, industrial and medical applications soon. Think of anybody working on anything with a pair of glasses that can provide information on what they are looking at. You've seen movies with fighter pilots having the green digital information on their visor, sort of like that, but much better, think on a pair of designer glasses for consumers (yep, a better version of Google Glass) or industry specific goggles.
Virtual Reality: Get your game on. Gaming is growing at 10% per year globally. Cooler and more realistic gaming will bring more gamers on board, perhaps an old Atari Space Invaders junkie. It might even have a role in arcade style destination gaming.
Quantum Computing: Computing at the quantum level is coming and when it gets here in the next decade or two, everything will think faster. We are nearing physical limits for many computing processes, however, quantum computing promises to take a leap of a magnitude not imagined by Moore. This is the moon shot, hard to know when it lands though.
Smart Cars: According to Gartner around a quarter billion cars will be connected to the internet in the next three years. We are getting closer to the day when our cars drive themselves (is there a yellow flag somewhere regarding freedom to move around to be aware of?) and while technologists are hitting hurdles that are higher than expected, it won't be half a lifetime before our cars drive us somewhere while we nap.
Smart Healthcare: IBM's (IBM) Watson is already treating people - well. Sensors, data aggregation, treatment monitoring and review, pharmaceutical interactions, pharma delivery, health alerts and more. And one thing to be sure, technology will play a role in bringing the cost of healthcare down or the government will do that with price controls. Quite the motivation for the healthcare industry to make technology work.
Smart Homes: While we won't have Rosie (Jetson's fame) anytime soon, we'll soon have smart locks, appliances, beds, bathrooms, climate controls, self-cleaning surfaces, vacuuming, entertainment, security and a host of toys. For the ever increasing aging population we can expect better monitoring of health, medicines, meals and other services.
Smart Buildings: Architects, engineers, builders and inspectors are becoming able to construct more efficiently with the incorporation of RFID, QR codes and augmented reality. Smart technology though also makes the buildings more efficient to operate once built. Think not only of the smart homes, but smart buildings keeping track of labor, supply, sales, logistics and quality control - think automation (and job losses).
Smart Grid: The incorporation of alternative energy into the mainstream over the next decade will be one of the most important transformations of the past century. Having a grid that can handle transmission and distribution of energy efficiently will be paramount to energy security later in the century and to have a positive impact on climate change.
Smart Cities: Sensor technologies for city buildings, street lights, energy distribution, traffic, parking, emergency response and more will help cities more efficiently provide services and promote the public safety and welfare.
Smart Government (yeah, I know): "Smart government integrates information, communication and operational technologies to planning, management and operations across multiple domains, process areas and jurisdictions to generate sustainable public value..." says Andrea Di Maio, managing vice president at Gartner. I suppose that means our taxes will go down.
Where To Start For Investors
The list of potential investments is incredibly long and will be the topics of my articles for years to come, as I move back to my first investment love technology, after a long affair with oil and gas.
For many intelligent investors looking to adjust their asset allocation to overweight the "smart everything" world there are a few ETFs that I think can be core holdings. For enterprising investors looking for great stocks to invest in, see the holdings in these ETFs. Either way, using the ETFs or cherry picking best ideas, moving towards a heavier weighting in certain technology stocks is smart.
Here are three ETFs I monitor and could use, especially after a correction:
IShares North American Tech-Software ETF (IGV): One of my "ETFavorites" for its compact portfolio of 60 companies that help provide the backbone of technology.
iShares US Telecommunications ETF (IYZ): This might seem stodgy, but these are the companies providing the road for all other technology to travel. Also, it is very underpriced right now given the changes in net neutrality.
SPDR S&P Semiconductor ETF (XSD): Semiconductors make machines think, which is at the core of smartphones and every other smart device. This fund also has exposure to solar plays, due to the similarity of the technologies, which is a fast growing industry.
This article really is the tip of iceberg. I've started over a dozen other reports from this background reading. If you'd like to know when I publish analysis of individual stocks, follow me and check the box for email alerts.
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Disclosure: I am/we are long XSD, IYZ.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I own a Registered Investment Advisor - https://bluemoundassetmanagement.com - however, publish separately from that entity for self-directed investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.