Make big money from society's next big trends

Nobody has got really rich in the last decade by predicting economic growth and interest rates. But many have made big money spotting society's next big trends. Tom Bulford examines some current themes - and picks one small-cap company to watch.

I have to admit that when it comes to economic forecasts, I don't pay much attention. The fact is that they do not often seem to be right. What I do pay attention to are business and social trends. I'm talking about where the world is heading. Let me explain why this is so important.

Economic progress is three dimensional. On one axis we have time, on the second we have output but on the third we have the composition of that output. Nobody has got really rich over the last decade by predicting economic growth and interest rates. But several have made big money by spotting the megatrends. The rise of China and its voracious demand for raw materials was one that has made investors a lot of money. Another is social networking things like facebook and google. And a third is the huge growth of on-line commerce.

So I was especially interested last week to visit the HQ of Imagination Technologies (LSE: IMG) in Hertfordshire. Imagination designs the chips that power consumer electronic devices. Absolutely crucial to its success is the ability to spot future trends. I was shown into a room, a show-case of some of the products that incorporate Imagination's designs.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

I saw television screens with ultra high definition pictures. Set-top boxes that will be crucial to the control of our TV sets as they start to receive content from multiple sources. There were sleek digital radios that can pick up thousands of stations from around the world. And Satnavs without simple two dimensional maps, but instead showing three dimensional images of the roadway. I saw car dashboards without mechanical dials but instead with a colourful array of digital information. And there were pocket-sized devices of all shapes and sizes, capable of connecting to the internet, providing entertainment and, of course, a means of communication.

They all looked great. Imagination owns PURE, the leading digital radio brand. Who says that the British cannot compete in the mass market for consumer electronics? From all that I saw, a couple of clear themes emerged

One is the importance of pictures. Mobile devices are increasingly being sold with their own mini-screens. The quality of the image is crucial and, to the impressionable consumer, will be a big point of differentiation. High definition TV will become the norm and this will condition our expectations of the images that are delivered by other means.

And the second theme is 'connectivity'. 'Everything Everywhere' is the motto of the industry. Wherever we are we want access to all the wonders of the internet. All the information, all the entertainment, all of the communication with the rest of the world. All this must be achieved with devices that look cool and use minimal power.

Finding the Googles of tomorrow

There just has to be massive growth in the broadband and wireless highways around which all of this information and data will travel. The internet will get bigger and bigger and become an ever more essential part of our every day lives.

The prospect is mind-blowing. The business opportunity is vast. Companies that today are almost unheard of will emerge as mighty winners. You won't find them amongst the FTSE100 companies that have grown fat on the business trends of yesteryear.

If you want to ride the next wave you must look amongst small, young, innovative and ambitious companies the giants of tomorrow. In November last year, Imagination Technologies shares were trading at 32p. At the time of writing [8 Sep] they changed hands for 165p. That's a gain of 415% in ten months and I'd have to think twice about investing right now after such a huge run up.

Still, it's one to watch. I believe it is companies like Imagination that will be the Googles of ten years' time. The time to start finding these gems is now.

This article was written by Tom Bulford, and is taken from his free twice-weekly email the Penny Sleuth .

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.