It Could Be Time to Jump into These Three Sectors

In today’s Money Morning, I’m going to share with you three ‘exponential’ sectors I’m looking at right now and why today’s markets are a great time to get interested in them. I’ll also share with you one key feature of investing reality that many investors miss, including the greats. It’s something I think will make a huge impact on your portfolio over the next decade.

Dear Reader,

I’m not going to bore you today with the latest ‘will they, won’t they’ on central banks, interest rates, and inflation.

Over the weekend, I remembered that being a ‘Fed watcher’ has never been a way I’ve personally made much money in the markets.

My speciality is in hunting down exponential trends.

Simply put, I like to find new ideas with huge upside potential.

Not only does it take you to the most interesting frontiers of science, but when you get it right, you can also make a heap of money.

It’s how I’ve invested for the best part of two decades, and I follow a pretty simple thought process which I’ll share with you today.

I’ll also show you three ‘exponential’ sectors I like right now.

But the key to this investing methodology starts with one concept you have to realise.

Let me explain…

This is your edge

Everyone knows it, but few do it.

When markets are down and fear is peaking, it’s often the best time to start investing in your favourite stocks and sectors.

You don’t need to go all in at once.

My preferred approach is to ‘ladder in’ — a form of dollar-cost averaging — at different price points to take advantage of panic sellers.

This way, you’ll be able to add great stocks on the cheap when others start to get irrational.

Indeed, the market is so short term in its thinking that being able to think one or two years out is a huge advantage for ordinary investors.

It’s your big edge, especially over professionals who’re usually just trying to make sure they’re not underperforming too much every quarter.

You see, if they do, investors pull money out of their funds, and they lose fee revenue.

Their short-term interests don’t allow them to make long-term strategic moves.

But you can…

And in turn, take advantage of the market fear right now as they’re forced to sell down.

But let’s take a step back.

How do you find stocks with exponential potential?

Here’s how I go about it…

The Law of Accelerating Returns

Now it goes without saying that the hunt for exponential stocks is a risky endeavour.

And often — but not always — it involves playing in the small-cap sector of the stock market.

That means companies with a market cap of between $50 and $500 million and they usually have no profits or even any revenue.

Snobby investors turn their noses up at such stocks and say it’s all just speculation — not ‘real’ investing as they do.

This is true to an extent…though I’d argue all investing is a form of speculation.

After all, the future is unknowable.

And that stuffy viewpoint ignores a feature of reality that has itself grown exponentially over the past two decades.

Namely, the pace of technologically driven change.

It’s faster than ever.

In fact, it’s accelerating.

Famous futurist Ray Kurzweil called this the Law of Accelerating Returns.

He wrote:

‘An analysis of the history of technology shows that technological change is exponential, contrary to the common-sense “intuitive linear” view.

‘So, we won’t experience 100 years of progress in the 21^st century — it will be more like 20,000 years of progress (at today’s rate).’

His intuition on this is starting to bear out already.

And aside from the obvious societal implications, the implications for businesses — and hence investors — is profound.

It means many business models will be made obsolete a lot quicker than before.

It’ll increasingly be an adapt-or-die world that businesses live in.

And investors that don’t have the capacity to think ‘exponentially’ will also likely be left behind.

Clinging to old models that don’t reflect reality.

It’s already happening…

I mean, think how even an investor as smart as Warren Buffett missed the rise of Google, Apple, Facebook, and Amazon.

To be clear, that’s not just any four companies. That’s four of the most valuable companies on the planet over the past decade.

All missed by one of the investing greats…

Anyway, my point is that if you can take yourself out of the here and now and incorporate exponential thinking in your investing decisions, then this beaten-down, fearful market is a time of huge opportunity.

The cheaper it gets, the more extreme your upside potential as certain technologies advance.

But where to look?

Here’s three exponential sectors I like right now

First up…

Cannabis stocks.

Yep, I know these were all the rage a few years back. And I know they’ve been smashed for the past 18 months.

For example, the Advisor Shares Pure Cannabis ETF — with the aptly named ticker ‘YOLO’ (slang for ‘You only live once’) — is down roughly 85% from 2021 highs.

But as you can see on the chart, it’s finally starting to bottom out.

Now, the thing about cannabis — and most exponential stocks — is they often follow this kind of two-step rise.

First, there’s the hype stage as the industry comes into public consciousness.

Unfortunately, the realities of the research prove to be slower than the initial excitement, and you get a big sell-off like we’ve seen here.

But if the breakthrough is real — and I believe cannabis is going to make a big splash at some point — then the second stage rise can be even better.

Because it’s driven more by fundamental factors than hype.

And on that note, it seems we could get a bit of a regulatory tailwinds in cannabis soon too.

As International Banker wrote earlier this year:

‘…the cannabis industry nonetheless shows immense scope for growth in 2022. Arguably the biggest driver for this growth is the wave of legalisation actions for adult use and medical purposes across the United States, including in important, heavily populated states such as Connecticut and New York.’

Anyway, with a bottom starting to form on the charts, potential for more regulatory approvals, and a raft of medical studies making their way to the approval stage, I think now’s not a bad time to start staking out a few stocks here…

Second up…

Biotech…or more accurately, synthetic biology (synbio).

There’s been a bit of a buzz about this industry in recent years.

It represents the intersection of biology with computer science, artificial intelligence, and engineering.

The goal is to fast-track biological research and allow scientists to create tailor-made solutions at the level of DNA.

This could enable amazing things.

As the great Steve Jobs said towards the end of his life:

‘I think the biggest innovations of the 21^st century will be at the intersection of biology and technology. A new era is beginning.’

Indeed, it’s already started…

The synbio industry came into its own over the COVID crisis, allowing the creation of the Pfizer and Moderna vaccines (so-called RNA vaccines) at an astounding speed.

Anyway, with that huge leap forward under its belt, analysts expect the industry to grow at an astonishing 25% through to 2027 and beyond.

Lastly…

Artificial Intelligence (AI).

No industry has the potential to disrupt so much in so little time as AI.

There’re the big-picture complex tasks — think AI systems controlling a world of automated devices, including cars, engineering drugs, and perhaps even inventing new products.

But there are more mundane jobs in the firing line too.

Consider these recent photos created by AI-image generating models such as DALL-E 2 by OpenAI when asked to generate a ‘colourful alcoholic cocktail’:

Professional food photographers and Instagram wannabes are shaking in their boots!

I shouldn’t get too comfortable myself, mind you, as I also came across this site that offers ‘AI writing capabilities’.

Anyway, the sheer breadth of AI disruption is what makes it such an exponential space to watch.

And big-name companies like Google and Amazon are investing in AI capabilities.

But you can also find smaller companies in various niche areas of the AI space, including in robotics, quantum computing, health, and materials technology.

Three ideas to chew over…

Or, if you’re after specific recommendations for some of these exponential trends, check out myself and Ryan Clarkson-Ledward’s work over at Exponential Stock Investor.

Good investing,

Ryan Dinse,
Editor, Money Morning