If there is one thing we know from iconic billionaire and investor Warren E. Buffett, it is that getting on the right side of a big trend can be very profitable.
In the late 1980s, he thought that the soft-drink industry was about to be the next big thing.
Taking advantage of the opportunity, he invested 25% of the assets of his investment firm, Berkshire Hathaway -- about $600 million at the time -- into Coca-Cola shares. Since then, the value of that stake has turned into $16.4 billion.
Buffett's strategy shows that anticipating big global trends can lead to big profits for investors.
In an interview with Forbes magazine, he said that Coca-Cola shares at the time didn't reflect the potential for huge growth that was set to occur in the company's international business over the coming decades.
Buffett's strategy of holding a small number of very profitable ideas in his portfolio goes against the common investment principle of diversification, but when applied correctly, it can generate huge returns.
Those who had purchased $20,000 worth of Coca-Cola stock in January 1989 and held the shares would have an investment including dividends worth more than $510,000. That is a return of 2,566%, as shown in the chart below.
Investors often follow short- and medium-term moves in stocks and bonds for a quick win, but as Buffett's investment strategy shows, success comes over time, not overnight. Anticipating long-term trends, the kinds of changes that take place over many years, is the secret to bigger investment gains.
Buffett has built a career and fortune on this simple but difficult-to-execute idea.
First, he identifies great businesses with a strong likelihood of profiting from long-running trends. Then he focuses on those businesses and rides the wave for as long as possible.
Buffett predicted a powerful, long-running source of demand, in this case, that a mega-trend of accelerating soft-drink consumption was unfolding around the world. There were huge, untapped markets in Africa, China and the Soviet Union.
Hundreds of millions of people in these emerging markets had never tasted a sweet carbonated beverage before. Looking forward, it was easy to envision Coca-Cola -- the premier soft-drink brand -- experiencing long-term growth in these areas.
So the questions are: What is the modern equivalent of Coca-Cola in 1989, and which companies and industries will grow with the mega-trends of the future?
One clear difference between now and the 1980s is that the global center of capital is shifting.
In the 1980s, the U.S. was the center of the investment universe. Now, the axis of global growth is moving east.
By 2025, Asia's economies will be larger than those of Europe and the U.S. combined.
Here are three China mega-trends that will offer huge opportunities for investors.
1. Urbanization and rising middle class. China's transformation from a rural society to the world's second-largest economy has happened in less than a generation, and the process is far from complete.
Rapid economic growth has led to a huge increase in rural to urban migration.
About 56% of China's population lives in cities, up from 26% in 1990. But China is still some distance behind the U.S., where that figure is about 80%.
China's urbanization level is close to where the U.S. was in 1920, as the chart below shows.
This cocktail of development, economic growth and urbanization has created a huge middle class in China. And middle class people are spending their rising incomes on goods and services both in China and overseas.
The country's population of 1.38 billion is more than four times greater than that of the U.S. As China evolves into a developed economy, the absolute size of its consumer markets will be much larger than that of the U.S.
2. Pollution and China's investment in clean energy. For decades, China has pursued rapid economic growth at the cost of environmental degradation. Problems such as contaminated water, smog and soil have reached crisis levels.
To address environmental concerns, the Chinese government is embracing alternative energy.
On Jan. 5, Chinese energy agency officials said that they plan to invest $360 billion in renewable power sources such as solar and wind energy.
China has seen the second-largest growth in solar-energy capacity in the world and the largest growth in wind energy generation capacity, as shown below.
Investors stand to profit as the Chinese government pours money into companies offering pollution mitigation, renewable energy and waste solutions.
3. China's aging population. As a country's economy matures and urbanization continues, the number of seniors usually rises, and China is no exception. It is expected that the number of older people in China will increase to more than 355 million in 2045 from 131 million.
That is more senior citizens than the combined total populations of Germany, France, Japan and the U.K. As a population ages, spending increases on all aspects of health care including hospitals, medicines and nursing homes.
Just 8% of China's consumption is related to products and services for older people. By 2050, that proportion is expected rise to about 33%.
The boom in senior-related China investments is just beginning. The shares of many companies related to senior housing, pharmaceuticals, biotechnology and other medical services in China will trade much higher in the medium- and long-term.
Finding the next big investment is about insight, not luck. Via our premium service Truewealth Publishing, we've conducted extensive research on specific investments to capitalize on these and other megatrends in China. Click here for more information.
This article is commentary by an independent contributor. At the time of publication, he owned none of the stocks mentioned.
Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore. Click here to sign up to receive the Truewealth Asian Investment Daily in your inbox every day, for free.