Even as the market falls into a correction, the foundations are being laid for the next secular bull market, a period where the stock market sees massive increases in value over the long term. In fact, with this recent correction, I see many opportunities to get in on the ground floor of some great companies that will lead a fantastic bull market in the years to come.
Much as desktop computers and the Internet laid the basis for two decades of growth from the early 1980s through 2000, smartphones and social networking are creating the foundations for another two decades of massive growth. The past two secular bull markets, from 1942 to 1968 and from 1982 to 2000, generated 955% and 1,099% on the S&P 500, respectively. After 10 years of very little overall growth in stocks, could it finally be time for the next 1,000% bull market?
In this time of unease, fear, and overall uncertainty, it hardly seems likely for the bull to already be upon us. Yet the building blocks are being placed just as they were in the early 1980s. The key is to look beyond our borders -- and on our phones.
The beginnings of the Internet revolution
In the early 1980s, life was permeated by fears of massive inflation, then over 10% (imagine paying 14% interest on your mortgage); two major oil crises; and perpetual mediocre stock returns. The boom times of the 1950s and 1960s were well gone, yet amazing innovations were under way. Apple
At that point, few could have imagined a portable laptop computer for every person, much less a desktop computer capable of communicating with people halfway around the world. New developments like office productivity software and email weren't widely used. The equalization of content creation through blogs and social media was still many years off. Yet something profound was happening; our lives were changing, yet few could imagine how.
The revolution of 2011
Smartphones and social networking in 2011 are changing how we interact and communicate. Apple, along with a new crop of companies like Google
Throughout the world, new ideas are changing how people interact. Low-cost smartphones are bringing access to the Internet to people who never had it before, just like the falling cost of desktops gave greater access to computing in the 1980s and 1990s.
People in India and Africa use mobile phones as their main access to the Web, as limited Wi-Fi and costly laptops limit adoption. Google and Research In Motion
Mobile money and m-commerce are just now starting to shape our lives. Paying for groceries and shopping on our smartphones will soon become as common as shopping on the Internet. In Kenya, Vodafone developed a service called M-PESA that allows payments to be made through text messages. This service was the first mobile payment service to gain traction with a large portion of the population.
The world is changing
The level of innovation around the world is staggering. Startups and established companies are developing the groundwork for technologies and experiences that we as consumers are not even able to imagine. Text messaging is becoming obsolete as BlackBerry Messenger and other data message services gain prominence. Yet the greatest changes and opportunities are the ones we cannot foresee. Who would have thought in 1980 that we'd move from fax machines to email to cloud storage?
The Foolish bottom line
As an investor, this gives me a lot of confidence. If the stock market follows the level of innovation that is just now beginning, the overall stock market will see profound growth making ETFs like iShares S&P 500 and iShares Russell 3000 potentially great investments. And for great stock pickers, the future is even more promising. We will see the next generations of Apples and Microsofts emerge over the next 20 years, making astute investors massive fortunes.
Google, LinkedIn, and Epocrates are just a few of the companies that have the potential and the promise to change the way the world interacts. But I am much more excited to see how new companies like Zynga, Facebook, and other startups change the world as they go public.
Investors should keep an eye out for promising new IPOs as well as new innovations happening at home and abroad. We cannot foresee everything that will happen in the next five, 10, 15, or 20 years, but we can invest in the companies that will take us there.
