The Economics of the Not-Obvious

Before picking stocks, you need to pick industries, which means studying current economic trends - changing customer preferences, politics, geography, climate change, etc. Which industries will thrive in the next five years, and which will flounder? This is already obvious to some, but many fail to take it to the next step: Which of these economic trends are not obvious to most investors?

For example, let's take political momentum towards fighting climate change, which has led stocks related to solar energy and wind energy to soar. Taking the Hipster Investor philosophy, it's no longer a good time to invest in wind and solar, as these stocks are all likely overvalued by now. 

So how can we take advantage of this trend while avoiding the obvious?

For one, wind and solar are highly inconsistent in their energy generation, and so need backup power plants that can startup quickly and be shut down quickly. The only type of plant that fits the bill is natural gas, which is why I now have several positions in companies related to natural gas exploration, logistics, and generation.

The other not so obvious thing is that wind and solar aren't the only sources of energy that are considered "renewable". Hydroelectric and geothermal are both clean, "renewable" sources of energy, with the added advantage of high consistency in output, and therefore can therefore fulfill baseload contracts. Furthermore, hydro and geothermal plants can only set up in very specific, rare locations in the world, so any company that has a hydro or geothermal plant, or at least has the rights to an ideal location for either, has a particularly large moat. Of course, I've snapped up several stocks in hydro and geothermal.

Going back to the Hipster Investor philosophy, invest not in the current trends, but what the near-future trends are going to be. It's important to look beyond the industries in the spotlight, in order to see the industries that are just coming out of the shadows.