Two More Industries With Good Long-Term Economics
Yesterday I wrote about two industries with good long-term fundamentals: health care and for-profit education. Today, I’m going to share two more industries I think are good long-term bets.
As I wrote several months ago, mutual fund companies quite often make better investments than the majority of the funds they manage. There are three primary tail-winds behind asset management companies:
- By nature, asset management requires very little in the way of capital expenditures. Therefore, companies are free to cut back to the bone in tough economic times without having to worry about service or investment results suffer all that much.
- As the cost of buying and selling various securities via innovations such as ETFs, ETNs, mutual funds, etc continues to come down, the asset management industry will attract more and more of the public’s money. Not only will they manage the investments of the ultra-rich, but of the lower-middle class as well.
- Financial assets are becoming stickier and stickier. Once you become a 401k provider of a corporate plan, you have a monopoly on all the assets in it. In essence, you even don’t have to compete anymore. The IRS penalty for early withdrawals is enough to keep most of the assets with your company. This is a huge problem for investors, but a boon for fund companies. Sadly, I don’t see this changing anytime soon.
In the end, it comes down to the fact that investing can be a complicated as you want it to be, and there is always a certain percentage of the population (large majority of it, really) that simply doesn’t want to bother learning how to do it on their own. What’s more, the financial media goes to great lengths to convince the general public that it needs their services. So long as that is true, owning a money-management firm is like owning a printing press.
It’s true that “they aren’t making any more land,” but that’s not the trend I’m concerned with here. After all, there’s plenty of undeveloped land out there. Probably 90% of the American west is sparsely populated, if at all. So what makes real estate so valuable? Location, location, location. Desirable neighborhoods are desirable for a reason: they are surrounded by fine dining, a great public park, good scenery, a vibrant social scene, etc. What’s more, these desirable features may be difficult to recreate. Top chefs won’t want to open a restaurant in the middle of nowhere. Scenesters are loyal to their favorite bars. Great scenery isn’t easily transported to a neighboring location.
Over time, public transportation is likely to become more and more important as fossil fuels begin to run out and oil becomes more and more expensive (I don’t believe for a second current oil prices will last). In the next few decades, it will simply be too expensive to live far out of town and rely on gas-powered automobiles for transportation. This will serve to make desirable locations even more desirable since public transit will likely only be built out to cover the most populous areas. The saying would probably be more accurate if it said, “they aren’t making any more good land.”