Using one of Warren Buffett’s favorite investing techniques — and the specific industry which will grow your money for decades to come
When it comes to building wealth in stocks, few concepts will help you more than something we at InvestorPlace call “Inevitables.”
In fact, we believe knowing about “Inevitables” — and putting them to work for you — is a critical part of being a winner in the game of money. It’s a “Top 10” most important concept for stock investors.
“Inevitables” is a concept popularized by legendary investor Warren Buffett. It’s his term for businesses with huge competitive advantages that dominate their industries.
From Buffett’s 1996 Berkshire Hathaway investor letter:
Companies such as Coca-Cola and Gillette might well be labeled “The Inevitables.” Forecasters may differ a bit in their predictions of exactly how much soft drink or shaving-equipment business these companies will be doing in ten or twenty years … In the end, however, no sensible observer — not even these companies’ most vigorous competitors, assuming they are assessing the matter honestly — questions that Coke and Gillette will dominate their fields worldwide for an investment lifetime.
In simple terms, “the Inevitables” are the market leaders of specific sectors that will be in demand for decades to come.
They have such well-entrenched and well-defended positions that their continued dominance and success in this in-demand market sector is virtually inevitable.
So, what’s the outcome for investors like you and me?
“Inevitables” are incredibly powerful, long-term investments that enable us to make huge returns while sleeping well at night.
***As an example of an Inevitable, we need to look no further than Buffett’s investment in Coca-Cola
In 1987, Buffett noticed Coca-Cola’s dominant position in the beverage industry. He saw a market leader with a world-class brand selling a beloved product that would be in demand for decades.
You know where this is going — “Buffett made tons of money” — but let me provide a few details to drive home just how much wealth an Inevitable can generate.
Buffett purchased the largest chunk of Berkshire’s Coca-Cola investment in 1988 with $1 billion.
It’s fair to assume he paid an average of roughly $2.50 per share (split-adjusted) based on Coca-Cola’s trading range in late 1987 and 1988. And at that time, the split-adjusted annual dividend was $0.08.
Since then, this Inevitable has continued to grow and dominate its industry. Though public tastes are shifting due to a focus on health, Coke is responding and diversifying its product line, enabling it to remain dominate. The effect?
Coca-Cola has increased its dividend every year for 32 years since Buffett’s purchase. Today, it pays $1.60 per share in annual dividends.
Now, here’s the long-term power of investing in Inevitables …
Coca-Cola’s $1.60 annual dividend today generates more than a 60% yield on Berkshire’s initial investment — every single year. And this return is not only all-but-guaranteed, it’s nearly certain to continue growing as this inevitable continues its market domination.
In fact, if we assume the same dividend growth rate, only a handful of years from now, Buffett will be enjoying a 100% annual return on his initial investment — just through dividends.
Realize what this means — regardless of what Coke’s price does each year, the investment will still pay Buffett 100% of his initial investmentevery single year.
And by the way, Buffett’s Coca-Cola investment has increased to be worth 19 times the initial cost-basis price.
***Expanding on the concept of “Inevitables”
Let’s now take Buffett’s concept a little further. While “Inevitable” has referred to a specific company up to this point, the concept is equally applicable to those giant business trends that are so powerful and entrenched that massive growth from future demand is “inevitable” … virtually guaranteed.
We look for business and technological trends with “glacier-like” size and power. That’s because when you find these trends, invest wisely, then allow time for growth, you create dynastic fortunes. I’m talking generational wealth that changes lives.
So, how do you find such “Inevitable” trends today?
Well, it begins with a simple question — what goods and services are virtually guaranteed to remain in-demand, even massively increasing in demand, over the coming decades?
In other words, regardless of whatever bulls and bears come our way, independent of the inevitable ups and downs of our economy, what products and services will always be in demand?
For instance, there’s chocolate. Regardless of health trends, business cycles, or market volatility, three decades from now, people will still want chocolate. The same thing goes for wine … and coffee … or home-renovation.
But there’s one trend that’s much newer — and is going to outpace all of these Inevitable industries in terms of its growth.
If you’re not sure why, just ask yourself — as technological advancements continue to drive us toward greater online connectedness, will cybercrime get worse or better? Will there be more demand for cybersecurity three decades from now, or less?
***The cybersecurity industry is on the verge of breaking out to new highs
The chart below is for the ETF, “HACK.” It holds many of the top names in cybersecurity — Cisco, Symantec, Palo Alto, Fortinet, and FireEye, for example.
As you can see, it’s trading pennies below its all-time high, poised to break out into new territory.
Now, if you’re like me, you might see this chart and think “Am I getting in too late? Is it dangerous to be buying as an investment is making new highs?”
That can be a good, defensive mindset, but when it comes to Inevitable industries, that’s the wrong question.
A wise investor who understands the massive power of an Inevitable trend doesn’t need to worry about where an investment will be tomorrow, or next week, or next quarter. That’s because he understands that the right timeframe for evaluating an Inevitable industry is closer to “next decade.”
So, the right question is “will there be significantly more demand for this product a decade from now?”
And that points us back to the issue of whether you believe cybercrime will get better or worse.
***If you truly aren’t sure about that answer, let’s look at a few statistics
Part of the growth in cybercrimes relates to the simple fact that more people are getting online.
For example, Cybersecurity Ventures predicts that there will be 6 billion Internet users by 2022 — and more than 7.5 billion Internet users by 2030 (that’s 90% of the projected world population of 8.5 billion, 6 years of age and older).
Here’s how Cybersecurity Ventures describes the impact of this online growth:
Like street crime, which historically grew in relation to population growth, we are witnessing a similar evolution of cybercrime. It’s not just about more sophisticated weaponry; it’s as much about the growing number of human and digital targets.
Here are some additional statistics for added color on the problem.
– Cybercrime will cost the world in excess of $6 trillion annually by 2021, up from $3 trillion in 2015
– Identity theft increased fourfold between 2017 and 2018
– Experts predict that a business will fall victim to a ransomware attack every 14 seconds in 2019, and every 11 seconds by 2021
– Ransomware damages are predicted to cost the world $11.5 billion in 2019, climbing to $20 billion in 2021
If you’re still not convinced that cybersecurity is an Inevitable trend, let me show you a different angle on this.
“Catch Me if You Can” was a 2002 film starring Leonardo DiCaprio as Frank Abagnale, a real-life conman. These days, Abagnale is an FBI security consultant, working on the right side of the law.
He’s an authority when it comes to forgery, embezzlement, and cybercrimes. His take on where this trend is going is even darker …
Up until now it’s just a financial crime for the purpose of stealing money — or stealing data that is money — but we have the ability now to turn someone’s pacemaker off.
Can you imagine the potential for extortion given this type of hacking technology?
***How can you play this Inevitable trend?
The ETF, HACK, referenced a moment ago is one option. It will give you exposure to some of the top names in the business.
Of course, identifying specific, superior cybersecurity companies will likely result in far bigger returns.
For example, it wasn’t even a full three weeks ago that I wrote about one of Louis Navellier’s cyber-picks, CyberArk, in the Digest. From that issue:
While playing defense against these attacks is critical for you personally, there’s a way to play offense with your investments.
That’s because the same attacks that cripple city governments are tailwinds driving huge profits for certain cybersecurity companies.
Louis Navellier’s Breakthrough Stocks subscribers are already aware of this, as one of Louis’ picks is the cybersecurity company, CyberArk — now up over 42% since Louis’ February recommendation.
In that Digest, we recommended establishing a new position. So, what happened since then?
Louis’ Breakthrough Stocks subscribers who acted on Louis’ initial recommendation are now up 60%. And any Digest readers who bought the stock based on our 6/28 issue are up roughly 10% … in less than three weeks.
A congratulations to Louis and his Breakthrough Stocks subscribers, as well as any Digest readers who bought CyberArk. To learn more about how Louis identifies these outperformers, click here.
Wrapping up, oftentimes we overcomplicate investing. At the end of the day, it can be simpler — find a product that has decades of demand in front of it, then identify the market leaders.
Buffett did it with Coca-Cola, and it won’t be long before he generates 100% on his initial investment every single year.
Cybersecurity is, without doubt, an Inevitable industry that offers this same potential. Today, I urge you to put its power to work for you.
Don’t worry about checking your investment tomorrow, next month, or next year. Instead, simply buy, reinvest, and wait.
With enough patience you’ll see this wise decision today generate massive returns for you in the years to come.
Have a good evening,