Great ideas come from great minds. Great businesses need those ideas. Where do they look?
Today I’ll tell you why the great minds aren’t where they used to be. Global forces are changing the way ideas become reality. Conventional investment strategies won’t work in this new order.
We’re in a different world now. Let me tell you why.
Here in the U.S., many industry sectors have a regional “home base.” You may live near one of them.
No one forces bankers to stay in New York, or the film studios to be in Hollywood. It wasn’t an accident, either.
Similar businesses cluster together in this way so they can tap into specialized skills in the people who live there.
It’s easy to forget how quickly modern communications developed. Barely a generation ago, today’s routine long-distance collaboration was only a dream. Businesses went to talent because they had no choice.
Now this is changing. Talented people can work together from anywhere.
Silicon Valley is still important, but it isn’t the heart of the tech industry. That’s because the United States doesn’t hold the patent on innovation.
Geography is quickly becoming irrelevant to business success. Younger economies catching up with the developed nations. The technologies we developed are making it possible.
And … these nations are taking our innovations and improving them. Their new ideas will one day flow back to us.
Where Will the Next Big Idea Originate?
The trends are beginning to show up in academic research. A recent study published in Nature Scientific Reports looked at 450,000 scientific articles published in academic physics journals over the past 50 years.
Using statistical algorithms, they identified metropolitan areas where “physical science” ideas seem to originate.
The study shows an unmistakable trend. In 1990, the U.S. had 72 of the 100 top “idea-generating” cities. By 2009, we had only 56 of the top 100.
At the same time, Asia’s share almost tripled from four to 11!
Europe gained on us, too. The number of European cities in the top 100 went from 24 to 33.
Latin America and Africa are curiously absent from the lists. I suspect they will catch up soon. Both continents are full of top-notch young talent.
Within Europe, Britain and Northern European countries are losing their historical scientific leadership. Some of the best new research comes from the French, Italian and Spanish metro areas.
Where Knowledge (and Profitability) Lives …
When I take a step back from these details, I see a bigger trend. Scientific knowledge is dispersing itself everywhere. Where does knowledge live? The evidence tells us it is everywhere.
Location isn’t completely irrelevant, of course. Humans will always want family and community. This is part of our nature. Work is different.
In the New World, work can be anywhere. National origin and artificially drawn borders are less and less relevant. Scientists anywhere on the globe can now work together like neighbors.
Location does matter, of course, but only because governments hold on to power. They use constraints like patent law and tax policies to influence economic activity. They are losing their grip as brainpower gains mobility.
As investors, we have to change our thinking. We must get out of the geographic box and invest globally.
Wall Street thinking is still geo-centric. They want you to invest 40% here, 20% there, 10% way over there, etc.
This paradigm is backward.
Ideas don’t care about borders, and neither should you. In my Global Trend Trader service, we look for winning companies with a sophisticated computer model covering all the world’s equity markets.
We don’t handcuff ourselves to the U.S. or Europe or anywhere else. However, it is important that — wherever the ideas and the innovations are coming from — they can be traded on the U.S. exchanges.
If you want to dip your toe in the water of world-wide opportunities, consider these two ETFs. Both give you access to the technological innovations sprouting outside the United States.
- iShares S&P Global Technology (IXN)
- iShares ACWI ex U.S. Information Technology (AXIT)
IXN takes a global view, so it has a large U.S. allocation supplemented by tech leaders from Europe and Asia. AXIT fishes for opportunity in the whole world except for the United States. That’s the “ex-U.S.” part of its name.
Political and legal issues aren’t completely irrelevant, of course. We consider them carefully as we evaluate new recommendation ideas. They are part of the picture … but a smaller part than they were even a decade ago.
But when it comes to where the next big idea, technology or other potentially life-changing science comes from, it’s critical to be “geographically agnostic.” Your job is to gravitate toward the best stocks and ETFs out there, wherever they happen to be.
P.S. Stay close to your e-mail because we’re going to be sending you a very special, limited-time offer to join my Global Trend Trader service at a steep discount. Stay tuned!