With the Dow at 40,000, Here's How to Win No Matter What Happens Next
One AI stock that'll get you started ...
The Dow Jones Industrial Average closed above the 40,000 level for the first time ever on Friday.
The Wall Street Journal tells us this new milestone was reached just 874 trading days after the Dow’s November 2020 close above the 30,000 level. And the new record has triggered all sorts of predictions that U.S. stocks have plenty of room to run.
“The screens are green and the skies are blue … and there’s more upside,” BMO Capital Markets Chief Investment Strategist Brian Belski told Yahoo Finance.
Belski just boosted his year-end target for the S&P 500 to 5,600 — a gain of 4.7% from current levels, and the highest on Wall Street. He’s not a alone: Strategists are boosting their targets — especially of late.
Carston Group’s Ryan Detrick posted on X that – using historical statistics – U.S. stocks rose an average of 20% in the year that followed Dow milestones of 10,000, 20,000 and 30,000.
Even U.S. President Joe Biden — who resisted taking credit for stock gains in the early part of his administration — has succumbed to “Dow Milestone Fever.”
“Record stock market highs under President Biden are good for retirement accounts and household wealth and that’s just a fact,” White House Press Secretary Karine Jean-Pierre said last week.
Here’s the thing.
The Dow is just a number.
And the “end of the year” is just a date on a calendar.
I don’t fixate on what the Dow Jones Industrial Average or S&P or Nasdaq Composite does today, tomorrow, this week, this quarter or even this year.
You see, as a hard-core Wealth Builder, I’m a “Next Bull Market” kind of guy.
I’m not just looking to “make a profit.”
I’m looking to create wealth.
I’m not interested in the “Dow Debate” we’re seeing right now. I’m looking long term …
In fact, I want to show you how to win … no matter what the Dow does next.
A CONTRARIAN WHO’S NOT CONTRARY
My investing views often come off as Contrarian in nature – and with good reason: I co-authored the Prentice Hall bestseller Contrarian Investing: How to Buy and Sell When Others Won’t and Make Money Doing It, with a foreword by investing icon Jim Rogers.
My Contrarian mindset was nurtured by paternal grandparents who were hard-core products of the Great Depression. Refined by a journalism career that took me through the last part of the Cold War, the Crash of ’87, the S&L Crisis and more. And hammered and hardened in the in the subsequent fires of the Great Financial Crisis, the Great Recession, the COVID-19 Pandemic and the worst inflation we’ve seen since the 1970s (which I also experienced with my family, while growing up in Pittsburgh and then Baltimore).
But Contrarians are misunderstood.
For instance, being a Contrarian doesn’t make me what, back in my business journalism days, we’d refer to as a “Perma-Bear.”
Nor (contrary to the “conventional wisdom”) does this mean that my market view is perpetually opposite the prevailing sentiment.
Contrarians only take that opposite stance at “inflection points” – (with broad markets or individual stocks). After that – once we’ve established our position – we want everyone to agree with our view. We want them to vote with their money. We want their liquidity to pour in and drive our holdings higher.
I’ve modified that Contrarian stance even more in the last few years. Call it more of a Contrarian “world view.” One where I eschew trading and have graduated from investing to full-on Wealth Building.
A WEALTH BUILDER, NOT A WEALTH KILLER
To be a Wealth Builder, you need to:
Avoid Options Trading – With Every Bit of Your Being: For most retail investors (and by “most,” I mean 99%), options trading is a Wealth Killer … not a Wealth Builder – and I don’t care what Malarkey-filled pitch “Derivatives Devotees” are making. If you see an options contract, run in the other direction as fast as you can. A new gambling affliction I’ve labeled as the “DraftKings Mindset” (like any malady, I discovered it, so I get to name it) has infected the retail “investing” markets. And I do mean infected – with Wealth Killer consequences. Anybody comes to you with a pitch for an options-trading “product” or “service” or “strategy,” be sure to look down while they’re talking – to see if they have their hand in your pocket.
Think Wealth, Not Profits: They sound the same, but they’re not. Investors obsess about the very things we talked about at the outset – what the Dow will do next week, what earnings will do next quarter, what the U.S. Federal Reserve will do before year end. We’re looking longer-term. At opportunities that will last three, five, seven, nine years – or even longer. And those opportunities are easier to find than you’d think.
Find the Best Storylines … to Find the Best Stocks: Powerful storylines – in its jargon-speak, Wall Street calls them “narratives” – are big trends that coalesce into the biggest wealth windows around. Even better: They help you spotlight the most-promising companies – the businesses that can ride these waves for years … sometimes even decades. You’ve got such supercharged storylines as the AI Era; Special Situations, which include spinoffs and alternative-asset opportunities like silver and copper; the New Cold War, which is intersecting with AI, and which is helping drive deglobalization, and which will drive hefty opportunities in drones, cybersecurity, defensive weaponry, and more; and the New Biotech, which will be defined by the Next Blockbusters, personalized medicine, AI and data, and consolidation.
Employ an “Accumulation Strategy:” Wealth Builders identify great storylines and the biggest beneficiaries from them. They have a “short list” of stocks they want to own (we have one in Stock Picker’s Corner Premium that we call the “Farm Team”). And they build that portfolio of Wealth Builders. They don’t wait to have “all the money” for the maximum-intended position – they establish “foundational” positions … even if that means buying “fractional” shares. Then they buy stocks off that “watch list.” Or they add to existing holdings by buying when they have more money, or when those stocks pull back.
And I want to give you a Wealth Builder stock here today.
A KEY TO THE FUTURE
Artificial intelligence is one of those rare things whose name really describes what it is.
Granted, I’m vastly (and intentionally) oversimplifying this. But we’re essentially talking about using super-high-powered computers to simulate human thinking.
You’ll hear more and more about such innovations as machine learning, machine vision, speech recognition, generative AI and natural-language processing. AI systems are fed massive amounts of data, looking for patterns or correlations to “learn” how to do work usually done by people.
AI will help limit mundane tasks (things like data entry), identify threats and implement home-security measures. It’ll put self-driving vehicles on the roads, in the air and on and under the global seas, to list a couple of examples. The future uses will boggle the mind – limited only by the inventiveness of creators around the world.
And the spinoff benefits created will be equally mind-boggling.
Take “generative AI” – the flavor of artificial intelligence that can create images and text replies on command. Just that slice of the AI market has direct and indirect economic benefits of $6.1 trillion to $7.9 trillion a year, says consultant McKinsey & Co. With those numbers, if generative AI was a country, it would’ve been the world’s third-largest economy in 2022, trailing only the United States and China, according to the reference website Worldometer.
BIG STORY, BIG NUMBERS, BIG OPPORTUNITY
Different forecasts put different dollar values and different growth rates on the AI market. And forecasting anything a decade into the future with any degree of exactitude is a fool’s errand.
But that’s okay.
We know AI will be a massive Wealth Builder – for years – especially for anyone who starts now.
Researcher Market Growth Reports says the worldwide AI market will grow from about $67.4 billion in 2022 to a forecasted $501.8 billion by 2026, a compound annual growth rate (CAGR) of 39.73% during that short run.
Precedence Research projects a bigger upside, with a slightly slower growth rate.
According to Precedence, the global AI market will surge from an estimated $454.1 billion in 2022 to a projected $2.5 trillion by 2032, with a CAGR burst of 19% from 2023 forward.
The U.S. slice of that market will surge from $103.7 billion to a forecasted $594 billion during that same 10-year stretch — also a CAGR of about 19%, Precedence says.
With an estimated value of about $167.3 billion, North America accounted for 36.84% of that AI market in 2022. And if you wanted to break the global AI market into pieces, the two biggest pieces were “deep learning” (36.36%) and services (39.64%), the Precedence researchers said.
WHEN DATA BECOMES CURRENCY
There’s a subplot in the AI story. And it’s a page-turning Wealth Builder with years to play out.
I’m talking about the explosion of digital data that must somehow be stored, organized and managed so that AI, autonomous vehicles, cryptocurrencies, digital payments, e-commerce, drug discovery and personalized medicine, cybersecurity and cyberwarfare, virtual working and virtual learning – and scads of other key pieces of our modern digital lives – can evolve and advance without disruptions.
The enabling linchpin of everything I just described here is sprawling, campus-like villages where zettabytes of data – not human beings – make up the citizenry.
They’re called data centers. They’re like self-contained high-tech cities.
Data-center campuses include massive buildings that house rows of networked computers, routers, switches, software, cables, power systems and more. Their massive storage capacity, and speedy operation, lets you have Zoom meetings with colleagues on other continents, binge-watch the latest movies or old TV shows, use ChatGPT to ask for a “Keto” chocolate-chip cookie recipe (and have it in a second), order that Mother’s Day gift from Amazon Prime … and, well, you get the idea.
The need for data storage is massive – and massively underestimated.
Consultant McKinsey & Co. says power consumption is a good proxy for data center growth here in the U.S. market, which accounts for about 40% of the global market. That power consumption, which reflects the number of computer servers a data center can house, is projected to grow from 17 gigawatts (GW) in 2022 to 35 GW in 2030. Data centers will grow at 10% a year during that stretch.
A forecast by ResearchandMarkets is even more bullish. Data center hardware demand is projected to grow 12.4% annually on a global basis from 2023 to 2030. Here in the U.S. market, that yearly growth rate will be even higher – averaging 14.2% a year.
The individual projects will be massive.
Amazon.com Inc. AMZN 0.00%↑ – whose 31% of the global cloud-storage business makes it the market share leader – plans to spend $150 billion over the next 15 years on data centers to meet demand driven by AI adoption.
As companies push to offer better, faster and more advanced AI products and services, they’ll need data centers to handle the bandwidth.
That brings us to a Wealth Builder play we like a lot.
I’m talking about Blackstone Inc. BX 0.00%↑.
Founded in 1985 and based right on Park Avenue in New York City, Blackstone has $1 trillion in assets under management (AUM) – which makes it the world’s largest manager of “alternative” assets.
Those “alternatives” include more than 230 companies and 12,500 real estate assets.
And Blackstone’s folks are smart.
Very smart.
One of the strategies in Blackstone’s real-estate playbook is to identify areas of rising demand, where there’s a looming shortage of supply, and to swoop in as the landlord – ideally, grabbing those assets (and building hefty market share) before prices explode.
Blackstone’s already pulled this off with housing. And now it’s applied this winning strategy to (you guessed it) AI — and data centers.
I’ve put together a full report – and an update – on Blackstone. You can access both – for free.
See you next time.