One thing I think a lot about as an investor is what the world will look like tomorrow.
In particular I find myself musing how the world will look for my son when he's older; the challenges the world will face and how they may be resolved.
Companies that are leveraged to resolving these challenges are natural contenders for my portfolio.
Two significant themes that stand out to me are healthcare spending and the relentless evolution of software.
Personal health will always be a priority
Being in good health is remarkably easy to take for granted, especially when you're under 30. However health really is the foundation to our quality of life.
Spending on healthcare is not discretionary. It trumps all else and will continue to grow over the next decade. The U.S., partly due to an abhorrently broken system, already spends 17% of it's entire GDP on healthcare annually.
The S&P/ASX 200 health care sector (INDEX: ^XHJ) has significantly and consistently outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and its constituents which include CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) are some of the best historical performers around.
Software is still eating the world
In his seminal op-ed for the Wall Street Journal 'Why Software is Eating The World', Marc Andresson noted "Companies in every industry need to assume that a software revolution is coming." This is as true today as it was 6 years ago.
The world I see for my son will be automated and connected in ways I can't even fathom. Understanding the different economics of these companies can be tricky. Many have their own jargon
But taking the time to understand how the engine of the business works and how that is reflected in the company's reported earnings can be incredibly valuable.
For example Xero Limited (ASX: XRO) is not just a piece of software. The company is building a platform from which accountants and small businesses can link to their key stakeholders, like banks and suppliers. This can incredible value.
Meanwhile, Trade Me Group Ltd (ASX: TME) and Carsales.Com Ltd (ASX: CAR) can produce at what would have once been ridiculous margins by controlling online market places and adding users without needing much more investment.
Tying these two themes of health care and software together is the philosophy to make my portfolio reflect my best vision for our future. If I can pair that with finding great companies and I think be on the right track.
