Tag Archives: creative destruction

three ‘uninvestable’ industries for 2017

The “Trump Bump” will soon come to an end, and earnings will once again drive stocks higher or lower. Bulls think 2017 S&P operating earnings could hit $130 per share. Who knows if this happens? Even in times of relative stability, it’s foolish to predict the markets—and probably the only thing everyone can agree on these days is that our current situation is far from stable. There are too many variables, including uncertainties about the policies President-elect Trump will put forward, to have any clue where the market will wind up at year’s end. Will Trump succeed in cutting the corporate tax rate or start a crippling trade war with China? Will he “repeal and replace” the Affordable Care Act or throw the whole healthcare sector into chaos? Your guess is as good as mine, and anybody who claims to know is probably a partisan hack or a salesperson, or both.

One thing we can be sure of is that, as always, a handful of big movers will disproportionately impact the indexes in 2017. Last year Nvidia was that stock. I wish I knew what this year’s breakout name will be, but all I can offer with some certainty is that even if the indexes post another year of low double-digit increases, more stocks will struggle than flourish. Quite a few businesses could vanish altogether. Avoiding these laggards and soon-to-be zeroes is just as important to investing success as scouting for potential five or ten baggers. And one of the best ways to do so is to identify larger secular trends.

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two industries badly in need of some creative destruction

Austrian economist Joseph Schumpeter coined the term “creative destruction” to describe the positive impact of business failure on free market economies. It’s a simple concept. As better ideas for products or services emerge, old ones dies out. The classic example is the automobile coming on the scene and displacing horses and buggies. More recently, the internet has been a very creative destroyer. From retailers to travel agents to media companies of all types, it’s been steadily remaking just about every industry out there.

But often the companies and industries ripe for creative destruction aren’t as obvious as video rental shops or horse-drawn carriages–and they use their social and political connections to hold out far longer than they have any right to. That’s definitely the case in two sectors right now: real estate and higher education.

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