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What are the risks of having a long-term investment in one industry?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 545.6 million views in recent years.

In the answers below I focused on the following topics and issues:

  • What are the risks of having a long-term investment in one industry?
  • What are the advantages of nominal vs PPP GDP comparisons?
  • Is being a “digital nomad” a good idea to do for a fresh graduate?

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Some of the links and videos referred to might only be available on the original answers. 

Source for all answers – Adam Fayed’s Quora page.

What are the risks of having a long-term investment in one industry?

It depends what kind of investment.

An investment which can’t be sold easily, like private equity, doesn’t automatically become less risky if held long-term.

Anybody who made long-term investments into these things regretted it……

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The car destroyed the horse and cart.

For individual stocks too. We have all heard the expression don’t put all your eggs in one basket.

Ultimately, there is always a risk they will never recover.

The Nasdaq recovered from the 1999–2000 crash. Most individual names didn’t.

For indexes, it has always been safer to hold long-term:

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Going forward, the biggest risk for ultra long-term investments is probably population.

For the first time in human history we will likely see a declining human population not caused by starvation, but people having fewer kids voluntarily.

However, this won’t be an issue until 2050 at the earliest, and likely 2070–2090.

In the meantime individual countries will see their populations falls. This has started with Japan, China and a few other places.

Basically, countries which have low birthrates and tiny levels of migration.

Such countries are certainly riskier to invest in than before, whereas the demographic boom could be great for some African countries.

With that being said, humans have always been able to adapt. 200 years ago nobody would believe that we could feed all these people and have such high levels of GDP.

With automation, AI and other new technologies coming, there is no guarantee that countries will stop growing even if they have lower populations.

It is already happening where some countries with lower populations are still slightly growing their GDP.

Historically, that would have been nearly impossible, where business was all about hard labour.

What are the advantages of nominal vs PPP GDP comparisons?

Let’s look at what it is first.

As per the OECD’s definition:

“Nominal gross domestic product (GDP) is GDP given in current prices, without adjustment for inflation. Current price estimates of GDP are obtained by expressing values of all goods and services produced in the current reporting period”

PPP = exchange rate—the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country. To understand PPP, let’s take a commonly used example, the price of a hamburger.

So, PPP adjusts for currency movements and inflation.

When it comes to individuals, PPP makes a lot of sense (GDP per capita adjusted for PPP).

If you are earning $100,000 in Bulgaria or Bali after taxes, you can buy more things, and/or save more, compared to earning $200,000 net in Central London or California.

This also explains the rise of digital nomads who want to play “geo-arbitrage”, or why some workers accept pay cuts to live in cheaper towns and cities in their own country.

How much you earn isn’t as important as how much you can save and invest, adjusted for the same/similar lifestyle.

Measuring PPP when it comes to individuals isn’t without controversy though. For one thing, it is more difficult to measure than crude nominal income.

In loads of countries, buying rice and basic goods is so much cheaper than in developed countries, but buying houses, quality healthcare and education and much else is more expensive.

When I lived in Shanghai the metro/subway cost about 0.5 cent, or 1USD for a longer journey. A big bottle of water could cost 0.25 cent.

Yet buying property, some cars, international school fees and much else was very expensive – sometimes more than in expensive cities in the West.

Many other cities like HCMC in Vietnam weren’t that different, and I could give more examples.

So, how do you measure it?

Some surveys show Shanghai and HCMC are some of the most expensive cities to live in the world – others say differently:

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What are the risks of having a long-term investment in one industry? 6

The same is true with inflation. Measurement is always an issue.

When it comes to countries and GDP vs GDP (PPP), you have the measurement issue as well.

Nominal GDP might be crude, but it is more likely to be closer to accurate and easier to measure if everybody is honest, even though data shows some countries exaggerate GDP.

In addition to that, when it comes to power and realpolitik, real dollars/Euros/Yen etc matters.

Let’s say you have an increasing economy but fast falling currency, such as Turkey, and therefore your US Dollar GDP is falling, this means that you can’t buy as many things on the international markets.

You can buy fewer tanks and bullets in the event of a war unless you manufacture at home, your international aid budget in USD terms doesn’t go as far as your competitors and so on.

Most countries that see collapsing currencies, such as some countries in Latin America such as Venezuela, usually go into crisis, even if GDP is rising in the local currency in the first instance.

So if a country has a high GDP (PPP), but lower GDP in nominal dollars because of currency falls, it still has many disadvantages in terms of realpolitik.

Is “digital nomad” a good idea to do for a fresh graduate?

It depends.

whitephoenix a guy working on his laptop with chill vibe. 1e0f4068 aefd 4299 aeb7 18bc2b903db0
What are the risks of having a long-term investment in one industry? 7

In general, I would say no though.

What is the advantage of being a digital nomad?

You can live more cheaply elsewhere, and/or pay fewer taxes, and therefore gain more experiences alongside the economic benefit. That isn’t to mention flexibility.

However, to become a successful online business owner or nomad, you need a skill that an employer or customer will pay for.

Many people want to work from home, especially if it means international mobility, so it is a competitive field.

Best to get experience in the domain first, and then start your own online business or get a job, which allows you to be location-independent.

The exception is if you are already established. As a fresh graduate, that is unlikely unless you have been something like an influencer for years during university.

Pained by financial indecision? Want to invest with Adam?

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.



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