With the English football season underway, many fans are eagerly anticipating the performance of their favorite teams. One team that is expected to perform well this season is Arsenal. As a fan, I believe that Arsenal will finish among the top three teams by the end of the season. However, predicting specific match outcomes, such as the game against Fulham on April 1st, is more challenging.
Similarly, predicting stock prices from week to week is a difficult task. What truly matters in investing is identifying companies that have the potential to outperform over the long term. Investing in stocks is a game of patience, and I always look for conditions that support sustainable growth for well-managed companies with competitive advantages.
One factor that can support long-term growth for companies is demographic trends. In recent decades, the growth of the working-age population in emerging markets has been a driving force for increased consumption. Companies like Nestle, Coca-Cola, and Yum Brands, which owns KFC, have benefited from this trend.
Taking China as an example, the working-age population between 15 and 64 has grown significantly over the past fifty years. However, demographic projections have often been met with alarm, with concerns about overpopulation and its impact on the environment.
Recent data from the United Nations shows that global population estimates have been revised downwards. This has implications for investors, as a shrinking workforce may lead to economic challenges. Countries like Japan have experienced declining fertility rates and an aging population, leading to concerns about the sustainability of social welfare systems.
Fertility rates are influenced by various factors, including culture, religion, age of marriage, and access to contraception. In the UK, declining fertility rates have been attributed to the high cost of housing and childcare. However, countries like Germany and Italy have lower fertility rates despite lower housing costs.
High fertility rates are often associated with poverty, while wealthier populations tend to have lower fertility rates, especially when women have better access to education and employment opportunities. Without migration, populations will age and shrink, leading to a smaller workforce supporting a larger retired population.
The implications of these trends for investors are significant. As the workforce shrinks, companies with fewer employees per dollar of revenue will be less vulnerable to wage pressures. This trend is driving automation, with artificial intelligence playing a key role in increasing efficiency in labor-intensive sectors.
Healthcare is another sector that will see increased demand due to an aging population. Companies leading in automation of healthcare services, such as Danaher for diagnostics and Siemens Healthineers for medical imaging devices, are well-positioned for long-term growth.
While it’s challenging to predict the short-term performance of these companies, they are worth considering for a long-term investment portfolio. As I plan for my future, I realize that I may need significant profits to fund the costs of a care home I may enter one day. Investing in companies that cater to the needs of an aging population could be a wise strategy for the future.