Overview – Social Trends: Are They a Source of Investment Ideas?
Investors are constantly searching for excellent investment opportunities (or at the very least, constantly try to come up with investment ideas). After being highly selective with their choices while being paired with an abundance of patience, investors usually uncover these opportunities.
After some time, the number of worthwhile investment opportunities becomes increasingly thin, either because investors have already pursued them or have judged that certain opportunities don’t fit their goals.
What then is an investor’s next move?
One of the things investors may try to do next is anticipate future investment opportunities. This may sound like a no-brainer, but how exactly can they go about doing that?
There are all sorts of ways investors could do this, but the one we will look at is uncovering investment opportunities by paying attention to social trends.
Why focus on social trends? Because if done correctly, they can help investors uncover lucrative investment opportunities well before anyone else does.
What Do We Mean by “Social Trends”?
Before we continue, there is a fundamental question we must answer, and that is: What qualifies as a social trend?
Some people may brush them off as nothing more than popular topics making the rounds on social media, but there’s much more to them than just this surface-level understanding.
Let’s go even more granular and understand what exactly a trend is. Some of the definitions of a trend are “a prevailing tendency or inclination” and “a general development or change in a situation or in a way that people are behaving“.
On the other hand, “social” deals primarily with people or society as a whole, how they interact, and how they carry out their day-to-day lives.
So, with this in mind, we can define social trends for our purposes as “A prevailing tendency, inclination, or development in how people or society live, act, and make decisions”.
Therefore, social trends can be relatively simple, such as changes in fashion tastes, or extremely groundbreaking, such as how society initially treated the internet as a mere novelty to eventually relying on it for almost all facets of life.
How Social Trends Can Lead to Potential Investment Opportunities
With a clear understanding of what constitutes a social trend, we can start to see how they may lead to potential investment opportunities.
All sorts of social trends are taking place at any given time. Many of these trends may be relatively inconsequential or don’t garner much attention, but some have the potential to directly influence the economic decisions that people make, meaning potential business opportunities may await.
Businesses that can directly address the new demand these social trends bring could potentially experience a major boon to their financial fortunes.
By extension, the investors who successfully identify which companies are best suited to capitalize on these social trends will have discovered their next lucrative investment opportunities, possibly before other investors have done so.
Take electric vehicles (EVs), for example.
Starting in the early 2020s, EVs have experienced a rapid increase in popularity and consumer uptake. Vehicles that were once seen as a mere novelty are now becoming increasingly accessible to all sorts of people.
Pundits of EVs believe that the 2020s will be the decade when EVs disrupt automotive markets worldwide. In fact, the EU is contemplating the idea of phasing out combustion-engine vehicles entirely in the coming decade.
Because of this social trend toward vehicle electrification, car manufacturers are racing to make the most of this lucrative opportunity.
The manufacturers that successfully position themselves as EV leaders will most likely see their business fortunes grow, meaning their investors also stand to benefit quite handsomely.
Additionally, a challenge that still plagues EVs today is battery technology. An EV’s driving range is limited by how much energy its battery(ies) can store. As society continues to embrace alternative forms of energy, this is a challenge also faced by the solar energy industry, whereby companies seek to store as much solar energy as possible for future use.
Observers in the world of energy storage technology are optimistic that this coming decade will be the golden decade of energy storage technology, as advancements in technology and government policy continue to advance.
The businesses that successfully solve the problems surrounding energy storage will reap abundant financial rewards, and so too will their investors.
Some historical examples of social trends that led to abundant business and subsequent investment opportunities are the widespread adoption of the Internet, the proliferation of personal computers, and the rise of affordable smartphones, to name a few.
Two very prominent case studies of highly successful companies that were started due to emerging social trends are Alibaba and Amazon. Their respective founders, Jack Ma and Jeff Bezos, realized early on the immense business potential that the Internet offered and seized the opportunity before many others did.
Early investors of Alibaba and Amazon who also saw the same potential offered by the internet are probably still patting themselves on the back to this day.
Now, investors may not be the ones who develop the products or services that address social trends, but they can certainly partake in the fortunes of the businesses that do, assuming these businesses can be successfully identified.
Such is the power that social trends offer to investors.
Predicting Future Investment Opportunities via Social Trends Is Much Easier Said Than Done
Our discussion in the previous section makes it sound like finding future investments by looking at where society is headed is a walk in the park, trivial even.
However, it’s important to keep certain expectations in check.
Identifying social trends that have a high probability of leading to something substantial is one thing. Identifying these kinds of trends, with the added condition of them leading to potential investment opportunities, is an entirely different challenge.
For every social trend that leads to an excellent investment opportunity, there are dozens that don’t. Investors who misjudge the investment potential of certain social trends could end up losing a substantial amount of money.
There’s also the challenge of differentiating social trends from mere fads. Remember the definitions of “trend” we looked at earlier, and how they describe a general inclination or change towards something. Fads, on the other hand, may garner lots of attention in the short term but quickly fade into obscurity.
Attempting to find investment opportunities by turning to things that disappear in a matter of months isn’t exactly a shrewd thing to do.
So, while social trends certainly have the power to help investors find new opportunities, it’s important to have a reality check of what exactly they can offer. Discovering the trends that lead to something substantial, let alone something worth committing capital towards, isn’t as easy as it sounds.
Potential Investment Opportunities Should Always Be Justified
Anybody, investor or not, can take stock of what social trends are currently making waves around the world and declare “This will be the next big thing!” So what separates serious contenders from wild guesses? By having substance behind them, or in other words, can be reasonably justified.
Nobody knows for certain which social trends will go on to be revolutionary, only time will tell. But for the ones in the past that did, there were usually plenty of signs pointing to their inevitable success.
Going back to our earlier examples of successful social trends of the internet, personal computers, and mobile phones, all of them had plenty of justification to suggest that they would go on to be revolutionary, such as rapid adoption, endless applications, widespread appeal to various demographics, and increasingly easier access as time and innovation went on.
Our earlier discussion of EVs and related technologies may not turn out to be a revolutionary social trend worthy of an investor’s attention, but with the increasing number of EV owners around the world, the auto industry’s relentless push to develop them, and government policies/incentives centred around EVs, there’s a very strong case in favour of them.
Certain social trends don’t succeed purely out of luck, though luck does play a part. Rather, they succeed because they have plenty of validation to strongly suggest that they will.
Wrapping Up
Investors are always on the lookout for the next best investment opportunities, and one of the ways they can be uncovered is by paying attention to certain social trends.
While there are many social trends taking place at any given time, there are some that offer very lucrative business potential. The businesses that recognize these potentially profitable trends may see their financial fortunes climb – and so too will their investors.
With that being said, discovering these lucrative social trends is much easier said than done. For every trend that goes on to become a business and investment superstar, countless others don’t, so it would be wise for investors to keep their expectations in check.
