As I sit here thinking of what to write for our “what’s up Wednesday” I can’t help but recall a recent conversation I had with myself. “What’s the next big thing?” “Where should we be investing to get ahead of the curve?” “What’s the trickledown effect and is that something we can invest in?” Reflecting on the wealth my clients have accumulated and thinking about…how did we get here? The industrial revolution is where it started.
The Industrial Revolution, which began in the late 18th century and continued into the 19th century, had profound effects on the stock market and the broader financial system. The emergence of new industries such as textiles, steel, and railroads led to the expansion of capital markets as these companies’ needed capital. To raise the funds, they issued stocks (ownership) and bonds (lender) and the increased demand for capital facilitated the growth of stock exchanges including the New York Stock Exchange (NYSE).
The primary source of energy used to power these factories and transportation was coal and steam engines. Until 1859 when Edwin Drake drilled the first successful oil well marking the beginning of the oil industry. Initially oil was primarily used for lighting and lubrication. With the invention of the internal combustion engine oil demand significantly increased with the innovation leading to the rise of automobiles, airplanes, and other machinery that relied on gasoline and diesel.
This period from the 19th century into the early 20th century is often referred to as the Second Industrial Revolution. Characterized by the widespread adoption of electricity, the development of chemical industries, and the increased use of oil as an energy source. The Second Industrial Revolution evolved with the refining of oil and chemical engineering which produced plastics, synthetic rubber and other chemical products widely used today.
While oil was not a part of the early Industrial Revolution, its discovery and utilization became pivotal during the later stages of industrialization. Its impact on transportation, energy production and the petrochemical industry underscores its significance in shaping modern industrial economies.
So where do we go from here? What’s the next industrial revolution? Is it in batteries that power Electric cars, tools, and lawn equipment? Is it Artificial Intelligence (AI) or is it something else we haven’t experienced yet? There are some compelling arguments that suggest AI could be the Third Industrial Revolution, but I suggest that battery-powered devices could have just as a profound impact on our future as AI.
Battery Technology has experienced significant advancement since the late 20th century with rapid development in the 21st century. Modern batteries have revolutionized many aspects of our daily lives just like the Industrial Revolution.
Some would say key innovations such as Lithium-ion batteries disrupted the automotive industry with EVs. I’m not sure I would agree with the term disruption in the automotive industry, but it has given the consumer more options. One thing you cannot deny is the disruption in our lifestyle that this innovation has yielded. The energy accessibility these batteries provide gives us increased mobility and connectivity from anywhere in the world.
The traditional work locations are no longer defined by four walls, electric plugs and phone cords. For me it can be a laptop with your cell phone while sitting in the middle of a park or on a beach. For others it may still be steel toe boots, FRCs and walking through a gate at an oil refinery but you cannot deny even that picture has changed over the years.
What does all this mean for you, why is a financial advisor thinking in these terms? As an advisor who personally manages her clients investment portfolios, I’m always thinking in terms of where we should be investing. We obviously can invest in some of these industries, and we do, but are there other areas we could add to get us ahead of the curve?
Traditionally we utilize strategic asset allocation when creating our investment portfolios. This is a long-term approach where the portfolio’s asset mix is established and maintained over time with periodic rebalancing. Occasionally we reevaluate the asset mix due to social, political or economic changes going on around us and those changes may cause us to include an area we feel will enhance the portfolios’ performance. It’s important for us to keep you in mind. Your goals, risk tolerance and time horizon are more important than our philosophical thinking but when these things line up it could be dynamic.
Asset allocation does not ensure a profit or protect against a loss.
No strategy assures success or protects against loss.