One of the things I like to look for when doing research investment is general macro trends in the economy. A few weeks ago I highlighted the world's growing population, more complex energy extraction, and low interest rates as trends investors can profit from. Another trend that has come as something of a surprise to me recently is our growing appetite and willingness to pay for entertainment.
With the economy yet to fully recover from the recession of a few years ago, it's surprising at first that people would be spending more money on movies, amusement parks, gaming devices, and other entertainment activities. But on further inspection it makes a lot of sense.
First off, the recovery has been sort of binary in nature. Those with higher levels of education have lower unemployment and higher pay while those with less education have higher unemployment and lower pay. In other words, those who have incomes high enough to allow for significant disposable income are doing quite well in the current economy.
The other trend to look at is what we're spending on basic necessities like food and housing. Fellow Fool Morgan Housel recently pointed out that we spent 30% of household income on food in 1950 and we only spend 13% on food today. Spending on housing has grown slightly from 27% to 33% over a similar time frame, but the two added together are down considerably, leaving more money for entertainment.
Put these two trends together and you have a portion of the population that has more disposable income, and they're looking to be entertained.
The companies taking advantage
Some of Disney's success has been because of smash hits on oversized IMAX
For those who prefer more home-based entertainment, Activision Blizzard
Finally, a winner in the entertainment industry that may shock you is Cedar Fair
These companies have performed well, and their stocks have crushed the S&P 500 over the past 10 years.
I could even throw Apple into this group, highlighting the strength in the top end of the market. Who stood in line on Friday to buy an iPhone just to make calls? It's an entertainment and productivity device more than a phone, and Apple's success coincides with the strength in entertainment stocks.
Foolish bottom line
The entertainment industry may not seem like a place to find great stocks with the economy in the weak position it's in, but a closer look shows a lot of strength. As we recover in coming years, I expect the trend to continue and those with the money to seek out entertainment to continue to do so.
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