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How To Participate in a Big Trend

Investing is a strange business.

Very often, we are able to identify giant trends that we know will change the economy and—perhaps—even human history.

Most of these significant trends are very well known…

Think of electricity, TV, the Internet, modern medicine, etc.

You could have bought into these trends five, ten, or even thirty years into them and made a ton of money!

Too often, though, our psychology prevents us from participating in the winners in these trends.

Once we are a few years into a trend, we can determine a group of companies likely to benefit.

In the late 1990s, you could have bought a portfolio of the four most prominent internet companies of the time – America Online, Yahoo, eBay Inc. (NASDAQ: EBAY), and Amazon.com, Inc. (NASDAQ: AMZN).

All four of these would go on to survive to this day.

Depending on your entry point, you may not have made money in AOL and Yahoo, but neither stock went to $0, and shareholders got some value. Holders got value from the shares in Time Warner and other Yahoo assets, such as their stake in Chinese e-commerce giant Alibaba Group Holding Limited (NASDAQ: BABA).

Perhaps in another issue of HX Daily, we will do the math on those values, but we suspect that many investors made money, especially on Yahoo.

Since the peak of the stock market in March 2000, the shares of EBAY have gone from $13 to a 2022 high of over $80 and a recent share price above $50.

AMZN shares?

On a split-adjusted basis, they went from a high of over $5 per share to a recent high of more than $175 per share!

That is pretty incredible to think about…even if you bought the biggest four internet companies at the peak of the 2000 stock market bubble – you STILL made a killing!

Now, that doesn't mean you should have bought these stocks during that period…

Each went on to fall more than 75% during the stock market crash after the Internet Bubble.

That would be very painful and difficult for most investors to stomach and endure for those years.

We have been pondering this as we consider two of the most recent mega-trends: artificial intelligence and the new GLP-1 weight loss drugs.

Artificial intelligence is an interesting one because the largest current beneficiaries are already some of the largest stocks in the world – Microsoft Corporation (NASDAQ: MSFT), NVIDIA Corporation (NASDAQ: NVDA), Alphabet Inc. (NASDAQ: GOOG) and Meta Platforms, Inc. (NASDAQ: META).

We expect that a portfolio of these stocks will do quite well across the next few decades and likely go higher. However, we will be surprised if they match the performance of their Internet 1.0 brethren. They are just too big, in our opinion….

The group that intrigues us most is the weight loss drug companies.

Right now, two companies have a clear lead in this market: Eli Lilly and Company (NYSE: LLY) and Danish drug maker Novo-Nordisk A/S (NYSE: NVO).

With their blockbuster drugs like Ozempic, Wegovy, Mounjaro, and Zepbound, they have led the charge as these drugs change the face of humanity.

Both of them have also been awesome stocks. Here are the five-year stock charts for both…

Both of these have been absolute moonshots!

They support market capitalizations of $732 billion and $580 billion, respectively…

Should you buy these stocks now?

There are no doubt risks. We could see competing drugs from newer competitors. At some point, the market could also become saturated, and prices could move lower.

Our view, though, is that this trend is very much like the Internet back in 1999. It has a LONG way to go!

It is natural human psychology to look at a stock that has doubled (or gone up five-fold like these two) and think that the opportunity is over!

Remember, though, that for a stock to go up ten times, it first has to go up two, three, and five times.

We would encourage long-term investors to START by looking for stocks that have already doubled in a big trend to find winners.

Does this mean you should go and load up on these stocks right now?

Maybe…but we think the better move is to be patient.

You may be familiar with the concept of "dollar cost averaging."

This is a fancy finance way of saying – take your time and buy through time.

We recommend that you set a target amount of your long-term portfolio that is focused on this. Given the opportunity, 10%, 20%, or even one-third would make sense.

Figure out how much that is and buy both stocks over three, six, or even twelve months.

In the short term, some of these buys may look great, and others may look horrible, but in the aggregate, we think they will be smart investments.

Don’t miss out on the next mega-trend and – instead – figure out how best to participate.

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