LTP Notes 006: Cloud Battle, Ageing Economies, Optimal Number Of Stocks, and Others
Some investing notes that may help you gain insights or make long-term decisions.
☁️ Cloud Battle
Projected (until 2027) cloud infrastructure revenues for major players: Azure, AWS, Google Cloud Platform (GCP), and Oracle Cloud Infrastructure (OCI). We can see a steady upward trend, with total revenues expected to reach approximately $470 billion by 2027. Microsoft Azure and Amazon Web Services dominate the market, with Azure forecast to overtake AWS by 2027. Google Cloud and Oracle Cloud show slower but consistent growth.
Stocks and ETFs to watch: MSFT, GOOGL, AMZN, ORCL, SKYY
👵 Ageing Economies
An impressive trend among the world's top economies - they're all getting older, fast. By 2050, countries like Japan, South Korea, and Italy will have a dramatic increase in their elderly populations compared to working-age adults. Japan leads the trend, with a projected 70 seniors for every 100 working-age people by 2050. That's a huge jump from 2020! Even younger countries like China and India are ageing rapidly.
This shift can change everything from healthcare to the job market. Countries might need to rethink retirement ages, encourage more babies, or find ways to keep older people in the workforce longer.
Stocks and ETFs to watch: UNH, JNJ, PFE, ABBV, CVS, XLV, VHT, IXJ
💳 Consequences Of Fed Rate Cuts
Federal Reserve rate cuts and stock market performance, data by Charles Schwab. Contrary to popular belief, the S&P 500 often experiences significant drawdowns after the Fed starts cutting rates.
On average, the S&P 500 has an 8% drop 6 months after the first rate cut, and a 13.6% decline after 12 months. Fast rate cut cycles tend to lead to bigger market drops (-10.9% at 6 months, -20.7% at 12 months) compared to slow cycles. The most severe drawdowns occurred in 2001 (-29.7%), 2007 (-26.1%), and 2019 (-33.9%).
💻 The Rising Star of Global Outsourcing
The Philippines' back office industry is on a steady growth trajectory. By 2028, its projected revenue is expected to reach nearly $50 billion and employment exceeds 2 million people in the industry. This growth represents a significant economic opportunity for the Philippines.
Key factors driving this growth likely include English proficiency, cultural relationship with Western markets, competitive labor costs, and government support for the sector. While still smaller than India's massive $170B+ outsourcing industry, the Philippines is gaining its own significant niche in the global market. Companies like Concentrix and Accenture are major players, contributing to this raise.
Stocks and ETFs to watch: ACN, CNXC, EPHE (iShares MSCI Philippines ETF)
Related analysis:
🔢 Optimal Number Of Stocks
Over-diversification leads to underperformance. Boring quality businesses are usually diversified in terms of product and geography. This is achieved due to their global nature, having business in North America, Europe, and Asia. In addition, these companies often have multiple business segments that grow and diversify the cash flows of the business.
Having 10-20 quality businesses is likely enough diversification to take away most company-specific risks.
📈 Importance Of Sales Growth
A crucial insight for long-term investors. Based on top S&P 500 performers from 1990 to 2009, we can see that sales growth is the dominant driver of returns over time. While multiple expansion leads in the short term (46% at 1 year), sales growth is more important for the long term, with a massive 74% of shareholder returns after 10 years. Sustainable business expansion is key to long-term value creation.
ETFs to watch: VUG, SPYG, QQQ
This is not a financial or investing recommendation. It is solely for educational purposes.