The next big thing

[UK-with-kids]

After many years of saving and investing in boring trackers I've noticed that certain people have made massive amounts of money simply as a result of getting into something obscure very early on. In many cases the the risk/reward payoff would mean you could invest/speculate in hundreds of such outliers and only need one of them to come good to make enough money overall to never have to work again.

I was wondering if people have developed any strategies for trend spotting. Obviously once you hear about something in the mainstream media it's generally too late to get the largest upside so it would be a case of following certain peripheral sources of information and acting early.

This forum is one such source of information. For example, a search result for Bitcoin shows results going back to 2010 and a thread called "Anyone interested in Bitcoin?" which began in 2012: viewtopic.php?f=7&t=3918
Even the current one was started in June 2016. The money you could have made by acting on this would be enough to set you up for life and have plenty left over to do pretty much anything you wanted.

The novel Coronavirus was being talked about on here in January 2020 and at the time you had to do a Google news search to bring up any of the very few stories from the mainstream media. Investors could have taken all kinds of actions back then and made a good profit.

In the 1990s/2000s in the UK you could buy houses in areas of the Southeast for £50,000 which are now worth at least 10 times that. I actually knew people who were doing this, constantly refinancing them, and then using the equity to expand exponentially. One of my colleagues had more than 100 houses to his name in his 20s before he got fired from the company where we worked because he was spending all his time on it!

Now, I totally get that there is a lot of survivorship bias here. What about all the opportunities that turned out to be total frauds or just bad investment cases? Those are definitely hard to identify now in retrospect. But I would still argue that even if you threw money away on 100 such bad ideas, you would still be at least a millionaire, maybe a billionaire, just off the back of Bitcoin or Buy to Let or Tesla or even Gamestop(!)

So, how would you identify the speculative things to put money into now, and do you have any specific ideas

[Jean]

My impression is that the amount of thing that raise madely is increasing, and it's basicaly just the dollars and euros losing value. There are 2 crypto millionaire i know of just in my village and the neighbouring ones. This is going to drive real estate up like crazy. It's fun to double youre investment overnight for several night in a row. But I'm pretty sure it won't buy me what is called a "millionaire" lifestyle, even if the face value of it reach the million USD.

[ertyu]

This is the thesis of the entire ARK complex of ETFs ran by Cathie Wood. She invests in potential growth/disruptors precisely on the premise that she will get 99 companies wrong but will strike it big on number 100. You might want to check them out as an example of how one runs such a strategy. Many make the argument, however, that the macroeconomic conditions at this point of time favor a rotation away from growth stocks which already trade at extended valuations. I don't know whether this argument is correct, but I do think it is worth considering if one is thinking about pursuing growth strategies at this time.

Here is Harald Malmgren with his best attempt to identify trends of the future: https://www.bficapital.com/post/the-com ... sformation. Whether we will have a world war before we get there is a separate question.

[aptruncata]

Asia. Approximately 15 years ago i've noticed people on the streets of taiwan and japan carrying power banks (portable phone chargers). It made alot of sense to them as most were dependent on public transportation so once they left their homes it would be next to impossible to have their phones charged during their commutes. I thought it made a lot of sense to use one while traveling so i bought one for myself and the wife for about $20 a pop...they had sanyo batteries inside. Back home at the time, power banks were not as popular but we all know how that quickly changed.

Thats just one of several trends i've seen cross over from asia to the states in a matter of months.

Whether its a product, idea, food or service; if its popular in Asia and we don't have it here yet: it's only a matter of time or there are other factors preventing its adoption.

[Bankai]

It looks to me that the best time to invest in property in the UK has passed. I don't know enough about crypto but similarly it seems that the big move in BTC/ETH has already happened and risk:reward isn't that great anymore (obviously plenty of people will disagree and point at gold market cap as a target for bitcoin) while picking future winners from 10k or so different cryptos is... difficult.

That leaves equities. I'm also not a fan of index funds, although I do use them in my SIPP - it needs to carry me from 58 to state pension age so low-risk option is advisable here. With most of my ISA funds I turned to active management. Half of my liquid NW is invested in a selection of Investment Trusts and Active Funds. I'd recommend ITs as a superior alternative to OEIC due to their structure (closed-ended, can leverage, can invest in unquoted assets, can invest for really long-term, and many others).

There are few hundred of ITs available in the UK, some with very impressive long-term track record (i.e. 20-25% annualised over 10+ years). Good starting points for research are Morningstar and Trustnet. There's also a useful blog https://www.itinvestor.co.uk/. My favourite management is Baillie Gifford - these guys are one of the best stock picking team in the world. They publish a lot of very useful materials on their website https://www.bailliegifford.com/en/uk/in ... /insights/ including which 'disruptive' trends/themes they expect to do well. Having invested in 3 of their trusts, I'm exposed to 300+ 'disruptive', innovative companies of which only a few need to succed big to make a very good return. Ark investment also publishes some great materials like their annual Big Ideas Report https://ark-invest.com/white-papers/ Considering how few of these potentially disrupting companies will ever make it, it makes sense in my opinion to oursource research, management etc. to professionals. All this is high-risk high-reward so probably not advisable to put all your NW in high growth funds.

[nomadscientist]

Please correct me if I am wrong (I would love to see some rigorous investigation) but I think very few people got very rich quick and easy with BTC. There are many failure modes:

1. Get in early, get out too early (for example, with a mere 500% profit; it takes nerves of steel to leave this on the table and continue to own an asset that can go to zero, especially one that suffered violent downturns and unpredictable regulatory threats on several occasions)

2. Get in early, forget your passwords (probably a majority of early adopters who didn't sell early with good-not-great profits)

3. Get in early, never get out (I doubt most of the true HODLers have sold much at all, on the belief that BTC will become the money supply, so their mega-profits remain theoretical and could vanish tomorrow)

BTW, notice that that 2013 thread you linked talks about making money by mining which is also what I remember being the big thing at that time. The common belief was that the price per coin would remain roughly constant but it was cool that you could make "free" money by leaving your laptop on overnight. Not many people were talking about buying coins to sell them later, let alone 10,000% appreciation and BTC market cap matching that of gold. Almost all the talk was about mining. Those who mined a few BTC when it was valued at a few dollars and immediately sold them to pay the electric bill did not get rich. When mining got too expensive for anyone who wasn't custom-building ASICs, most of these guys lost interest entirely. Many of them also lost money on their depreciated GPUs. There is very little talk about mining today.

My belief is that most people who HODL'd for a very long time had idiosyncratic motives to be interested in this (often conspiracy theory-adjacent political motives), relatively high aptitude, and put a lot of time into it. But for such a profile, BTC HODLers are certainly not the only lucky contrarians who become millionaires as high aptitude individuals operating businesses (effective what it is when you're putting x0 hours/week into it) for a decade.

Again, I might be wrong about this, but I'd love to see the data if so.

[white belt]

To identify the “next big thing” is quite challenging for all of the reasons you indicated. You’re likely going to want to focus on one specific sector so you can gain a lot of domain knowledge to help guide your decisions. As Ertyu said, any highly asymmetric payoff is going to require you to place a lot of different bets because 99% will probably fail. You’re going to want to have a good understanding of portfolio construction and risk management to ensure you’re properly hedged.

You asked for sources of information outside of mainstream media, which I’d add is probably the worst place to go for any news related to investing/economy. I listen to podcasts, so my 2 favorite for staying ahead of the game are Macrovoices and RealVision. They both interview a wide variety of experts in finance and macroeconomics, so you can get a lot of different perspectives. These are people who usually manage large funds in which their job success depends on them accurately predicting macroeconomic trends. Like the ERE forums, Macrovoices was talking about the massive risk of COVID back in January 2020.

Edit: I’m convinced to succeed at speculation long term, you’re going to need a well-defined strategy. A lot of the examples you highlight are people who put all their eggs in one basket and got lucky, which is not what I would recommend doing unless the only two outcomes you care about are millionaire status and bankruptcy (no in between).

Edit2: Consider the psychological and emotional factors involved in this type of speculation. I made $2.6K profit off GameStop speculation in 24 hours and it was extremely stressful. Hence why I say I think you need a well-defined strategy with exit criteria, etc. It also means to succeed you have to be able to walk away with some profit while potentially leaving other profits on the table (if you’re the type of person that dwells a lot on “what could’ve been” then this isn’t for you). Like with any trading, you need to be a master of your own psychology and emotional quirks.

[nomadscientist]

FWIW, I did not make any money out of BTC 2009-2017. But I was aware of BTC, and if I hadn't been focused on other things (like getting a conventional job) I may well have made millions out of BTC. This awareness came from broad and scattered reading about many topics that appealed to my personal interest, mostly in unconventional sources.

I'm not a success story, then, but I will tell you this: you are not going to find the next BTC by reading marketing pamphlets put out by conventional fund managers, the people telling you BTC wasn't real as recently as a couple of years ago.

[Lucky C]

A Google search states that only 1-3% of patents ever make money. Let's use this as a rough estimate to guess that 2% of your Next Big Thing investments will be profitable, and say over the course of a decade you will lose an average of half your money waiting and hoping for the other 98% to pay off while your capital is tied up in them.

If your return on the 2% profitable ideas is 10% per year, the CAGR of your portfolio will be -5.9%.
A 20% CAGR on the 2% profitable ideas would get you a portfolio CAGR of -4.8%.
A 40% CAGR on the 2% profitable ideas would get you a portfolio CAGR of 0.7%.
A 60% CAGR on the 2% profitable ideas would get you a portfolio CAGR of 10.4%.
An 80% CAGR on the 2% profitable ideas would get you a portfolio CAGR of 22.5%.

Of course it would be reasonable to think that the 2% profitable ideas would be only as profitable as a typical business, with some making only slightly more than 0% and others doubling or tripling in value each year. I think it would be unwise to guess that the profitable ones as a group could return something like 60% per year which is what would be needed for stock-market-like returns.

The profile of the returns would probably follow a power law with the top 2% of the top 2% making the huge returns, the rest of the top 2% being slightly profitable, and the other 98% losing money.

So let's say 98% of your portfolio loses half its value over a decade, 1.96% returns 5% per year, and 0.04% is the jackpot Next Big Thing.
A 100% CAGR on the 0.04% most profitable ideas would get you a portfolio CAGR of -0.7%
A 150% CAGR on the 0.04% most profitable ideas would get you a portfolio CAGR of 15.8%
A 200% CAGR on the 0.04% most profitable ideas would get you a portfolio CAGR of 37.5%
A 250% CAGR on the 0.04% most profitable ideas would get you a portfolio CAGR of 60.1%

Bitcoin, to choose the biggest bubble of all time, was $0.08 in 2010 = CAGR of about 250% thus far. (If instead you were a little late and bought it exactly 7 years ago, it would be almost exactly 1/10th the price it is today = CAGR of "only" 39%.)

So, yeah, if you are investing in thousands of different things and holding forever then yes it could be possible to get rich quicker than through regular funds, but as you are counting on excessively high returns in a tiny portion of your portfolio, the difference between one ridiculously high return on the jackpot asset and another even more ridiculously high return (e.g. 100% vs. 200% CAGR) could be the difference between losing money and significantly beating the market. Tons of uncertainty and psychologically challenging.

One way you could try something slightly less crazy than this is to put the same small amount of money in every Russell 2000 stock and hold them all until retirement without rebalancing. Some will surely multiply several times, and others will surely go bankrupt. You will be holding on as the leaders become a more significant part of your portfolio and the losers become less significant. You won't have to worry about fund fees, taxes, or research (except which stocks are leaving or joining the Russell 2000 if you want to remove/add them). Of course this would be a bet that equal weight and not rebalancing will be superior to market cap weighting and rebalancing in the future. I don't suggest this is a winning strategy, especially starting now in early 2021.

P.S. If you are counting on just one thing in your portfolio returning 200% per year for the next decade to get you rich quicker than the stock market, that is like turning a micro-cap $100 million company into the highest valued company ever at $5.9 trillion in just a decade. Or finding an investor who can turn $100k into $5.9 billion in a decade. And Bitcoin outperformed that type of return! What I am trying to say here is that don't expect you will ever see another Bitcoin ever in your life... that's just how rare this type of performance is.

[giskard]

I was thinking about this exact question yesterday.

What we are really talking about here are asymmetric bets. What can you bet on that if you are wrong you will lose just what you put in but if you are right you will win huge? There are a LOT of these if you look hard enough. Of course a lot of these are not "the next big thing" but just big comebacks.

Asymmetric bets that have failed for me

- Fannie Mae Freddie Mac bet that they would get released from receivership and recapped. Obviously this never happened.
- Betting on recovery in risky oil equities at various points after it fell below $100
- Calls/Puts on bets on earnings beats or losses

Things that worked

- Bitcoin
- Ethereum
- SaaS cloud stocks
- Buying zoom calls in Jan 2020

Things that are still playing out for me

- Uranium comeback (will we like nuclear power again)
- US Marijuana stocks (will marijuana be legalized federally?)
- Alt coins including: Litecoin, ADA & some others. (e.g. will something replace Ethereum?)
- Silver & Gold miners (will the bond bubble bust and negative real rates increase?)


What are the other good asymmetric bets you can take right now? I keep hearing about psychedelics as being a thing that is going to go mainstream. There is a bill in California now to legalize Psychedelics in that state. Strange things are happening in bonds. What if the 30yr rate goes through the roof? It looks like globalism (maybe in terms of supply chains) is starting to reverse, how do you express that as a financial bet?

[white belt]

@Lucky C

Good data to put things in perspective.

@OP

What is the reason you are looking for such high asymmetric returns? I understand FOMO at the moment because of BTC or GME, but I don’t really see these asymmetric bets as anything more than peripheral excitement in the typical ERE strategy. I mean if you’re only spending <$20k a year, why is it necessary to discover the next big thing and cash out? Financial capital is just one form of capital. Even with conventional returns on typical ERE savings, you’re going to quickly end up with more money than you know what to do with. I guess this is more of a philosophical question.

[Lucky C]

I believe this line of thinking is associated with the current FOMO state of the market. Higher risk taking is contagious and we are envious of those who got a quick 1000% return on a cryptocurrency, a penny stock, or a long shot options bet. I've felt it the past month too and recently snapped out of it. I am probably going to continue fearing missing out over the very near term, but now I'm trying to rationally prepare for what's next and manage risk properly.

These little manias all around us makes a portfolio composed of mostly tech stocks (for example) look relatively conservative, even though it is clear that many stocks are so expensive that it doesn't make sense to hold them now, at least not at the allocations that the average investor is holding.

When the crowd is taking on more margin debt or taking out HELOCs to bet on surging stock prices, that's the time to think more conservatively than usual. Now is the time to be "boring," dare I say even holding some cash for future opportunities so that one does not have to hope for a lottery ticket in their portfolio?

[Ego]

So, how would you identify the speculative things to put money into now, and do you have any specific ideas

Every so often Mrs. Ego asks me to search for some particular item at the swap meet. For instance, she recently mentioned that we need a new can opener. I've noticed that when I am searching through the piles of junk with my mind focused on finding a can opener I often fail to see other really good things right in front of me. A friend might point out that I moved aside an expensive camp stove or looked right at an incredible painting and I will be surprised that I hadn't even seen it. It's as if my mind sees everything as "not a can opener" and moves on to the next thing.

Looking at the world through a lens designed to search for big events that will provide outsized financial returns may cause one to miss the really important things because the mind cannot immediately figure out the mechanism of profitability. Consider removing the profit motive and search for things that are interesting for no other reason that they ignite some spark in your brain.

[giskard]

I believe this line of thinking is associated with the current FOMO state of the market. Higher risk taking is contagious and we are envious of those who got a quick 1000% return on a cryptocurrency, a penny stock, or a long shot options bet. I've felt it the past month too and recently snapped out of it. I am probably going to continue fearing missing out over the very near term, but now I'm trying to rationally prepare for what's next and manage risk properly.

These little manias all around us makes a portfolio composed of mostly tech stocks (for example) look relatively conservative, even though it is clear that many stocks are so expensive that it doesn't make sense to hold them now, at least not at the allocations that the average investor is holding.

When the crowd is taking on more margin debt or taking out HELOCs to bet on surging stock prices, that's the time to think more conservatively than usual. Now is the time to be "boring," dare I say even holding some cash for future opportunities so that one does not have to hope for a lottery ticket in their portfolio?

Here is a question - would you rather be a wise person who says "here is a speculative frenzy going on, I'll avoid it and prepare for the aftermath", or would you rather be the clever person who says "here is a speculative frenzy, how can I draft off it and take profits on the way?".

You can definitely get burned with the second approach. But what if you are the wise person expecting a crash, expecting deflation... but then something stranger and unexpected happens? I see risks either way, why not do a little of both?

[johnsmith84730]

I fall on the more conservative side of this argument, and agree with most of the comments above in that vein.

The risk of getting burned on most of these things pretty much cancels out (or overwhelms) the upside in an EV calculation.

Instead of trying to pick the next insane bubble (BTC/GME etc.) and/or trying to take profits during the explosion (I admit I've done this as well in a limited way) I prefer to look for asymmetric bets that:
a) have at least some upside no matter what happens
b) fit in with a more web-of-goals type approach

An example:
Think climate change or other instabilities will become extreme in the coming decades?
Move to Canada (not hard to qualify for Express Entry even without a job offer, and get immediate healthcare and permanent residency on arrival. Buy some land - perhaps near whichever coast you have family (in our case we'd want to live in Ontario and be able to fly/drive across to our friends/family on the East Coast). Build up a bit of a homestead (not full-time work, just some light resiliency-type stuff. Apply for citizenship after 3 years to lock in Canadian citizenship for your descendants.

Maybe your bet will pay off in an asymmetric sense (e.g. massive surge in value of your land, protection from global instabilities if Canada ends up on the lucky side etc.), but even if it doesn't, you've built a nice property, it's almost certainly held it's value or appreciated moderately, you've gained Canadian citizenship for you and your descendants etc.

I can think of many other examples like this that have nothing to do with moving/citizenships/climate change etc.

[iopsi]

I knew of the Bitcoin and especially Ethereum project relatively early on.

Don't remember how i found the Ethereum project but it was at a time when they barely had a working website and subreddit iirc.

It was just out of interest about decentralization, blockchain and all of the potential of these things.

I legitimately liked the project, thought it could work and had even downloaded the first ETH client (frontier)..... yet for some reason i ended up not using it and forgetting about it all (till it was "too late" but not really...).
Everytime i think of the lost opportunity i curse myself a bit.


Anyway that said current opportunities/future opportunities i see are:

- cryptos, it's still not too late to rack in 10x or more gains. Total marketcap of cryptos will eventually surpass gold and possibly equities too (cause they will simply be engulfed by the crypto technology and the main blockchains that will host those tokenized assets will explode in value);

- food, stuff like Solar Foods (makes a pseudo grain out of CO2, electricity and bacterias iirc, it is allegedly insanely more efficient than any current food production method), synthetic meats (SuperMeats) and possibly plant based meats (i'm less bullish on these tho simply because of the cultural opposition to plant based mock meats);

- energy, renewables & batteries will continue to grow exponentially for a decade or more. Also small&modular nuclear reactors could be game changers (but still renewables should be the main future source of energy).
For renewables it may be better to invest in ETFs and such, while for the nuclear thing look into NuScale (there could be others too tho);

- AI&robotics, i'm not as informed about companies in these fields (except for DeepMind for AI and Boston Dynamics for robotics, respectively owned by Alphabet and Hyundai) but it's obvious these techs will be game changers;

- bio-tech, like longevity companies and such (look into the longevity sub reddit for publicly traded companies in the longevity field);

- space tech, like Starlink, SpaceX, BlueOrigin, etc.
None of them are publicly traded yet but Musk did mention that he may make Starlink public once they have a reliable cash flow.
He said nothing of SpaceX but i believe he will eventually make that too public, as the capital requirements for what he wants to do in the long term (a martian base & city) are insane and are extremely unlikely to be raised privately.
Obviously space related stuff has literally limitless material growth potential so i'm extremely bullish on any serious space venture.
On top of them being owned by Musk which in itself is a reason to expect massive appreciation;


These seem to me the major tech revolutions going on in the world right now so i would keep on eye on them and put some cash.
Not everything ofc, but i think having some amount (like 10/20%?) of capital to be used for high risk / high reward ventures is a good idea.

[Alphaville]

i agree with @iopsi, i think the matter is not trying to guess the next big thing, but rather having the risk capital to take a chance on those opportunities. the opportunities are in plain sight every day.

e.g., i've been reading and hearing and watching documentaries about bitcoin for ages, but i didn't have spare cash to throw at it and just see what happens, which i might have gladly done in spite of fearing the second coming of mt gox, just as a lottery ticket.

so it's not really necessary to have superhuman foresight. if you stay tuned to the world you see opportunities right and left; most will fizzle out, some will pan out somewhat, but a few will produce outsized results. which is the nassim taleb strategy for example, putting it most in ultraconservative instruments and allocating a small percentage to the search of positive black swans/assymetries (he speaks of biotech).

as for what % to invest the traditional advice i've seen for risk capital is 5% of net worth, but that depends on so many things it makes no sense without context.

where i think we can all agree is that the story of the security guard who borrowed $20k to buy gme ... is something one shouldn't replicate.
https://www.wsj.com/articles/gamestop-i ... 1613385002
(nevertheless he didn't touch his index funds and plans to retire in the philippines after the pandemic at age... 25? 26? something, if it works out i guess)

[Lucky C]

When the idea of investing in the Next Big Thing is popular (especially when assets are highly priced in general), the extremely high sentiment toward anything that could possibly be the Next Big Thing is already priced in. The best time to invest in tech is when the idea of putting a lot of money into it makes you want to puke.

Yes, the trend can continue for years if not decades, but the initial extremely high returns come from the transition when everybody is first afraid to invest in it thinking that it will fail, if they've even heard of it at all, to it being commonly known amongst the general public who is optimistic that it will succeed. The Bitcoin trend can continue upward but it is so broadly talked about with such high expectations of success that there is no reason to believe that it would beat a boring blue chip stock over the next few years. (Due to the extremely high volatility of Bitcoin, this will either be extremely right or extremely wrong - the point is that the expectation of Bitcoin alpha vs. boring stocks is probably close to zero despite the fat tails)

Lab grown food and future nuclear tech were two topics featured during the Bill Gates interview last week on 60 Minutes. You know, the slow-paced news show that old people watch. There's no secret tech revolution unfolding that you've heard of that the best pro investors / venture capitalists in the world haven't heard about.

Millions around the world now can't resist buying tech at any price, however detached from the most optimistic future cash flow projections. It's very comfortable and exciting for them to do it with all their peers doing it and with every price chart showing explosive growth that the imagination extrapolates into some future date filled with riches.

What makes a higher than average number of investors uncomfortable right now is not investing in growth stocks and crypto but holding a significant portion of their money in a low-yielding savings account. And the best time to hold a lot of cash is when the idea of it makes you want to puke.

[Lucky C]

P.S. the Next Big Thing in 1929 was Radio...

[Alphaville]

And the best time to hold a lot of cash is when the idea of it makes you want to puke.

i was only playing with small amounts, but after pulling out of crypto and other stuff decided neither that nor cash trash: i bought myself some money-saving tools instead, for greater ere/postconsumer skills. it's safer returns under inflation, although they won't be outsized. investing on myself, so to speak.