I recently talked to my friend James Altucher about his favorite moneymaking trends for the next few years.
If you don’t know James, he’s a multi-millionaire entrepreneur and an extremely successful investor. His long list of huge investment wins includes a 6,000% gain on Buddy Media…a 4,000% gain on Ticketfly…and a 1,200% gain on a cloud computing firm.
James is also the most connected analyst I know. He has dozens of hedge fund managers and venture capitalists on “speed dial.”
In our conversation, James explained why he likes one huge investment trend more than any other. Although few people are talking about it yet, this trend will create trillions in wealth in the coming years…and mint thousands of new millionaire investors who get in early…
Casey Research: James, the story of how you got into investing is unique. Could you tell us about it?
James Altucher: Sure. I got into investing for better or for worse by losing a lot of money. I sold a company in the '90s. And because I was good at one thing I thought I was a genius at everything, which is a common mistake. And of course, I was a genius at nothing. I started investing the money I'd made and essentially lost all of it. So I figured, “Hmm, I'd better take a step back and figure out what I'm doing wrong.”
So I developed my strategy by saying, “Okay, what are the smartest investors doing?” What is Warren Buffett investing in? What is Carl Icahn investing in? What is Dan Loeb investing in? What is Stevie Cohen investing in? Where are all these people who have been investing professionally for 30 or 40 years or longer and who are much smarter than me and have 100 researchers working for them putting their money?
There are lots of ways to find this out. You can find this out through your network of friends if you're connected that way. You can scour SEC filings of big investors like Warren Buffett… plus his letters, his notes, things he mentions on either TV or in articles.
So I make a very big effort to follow all of these investors.
Casey Research: Can you give us an example?
James Altucher: Let's say Warren Buffett buys IBM at $100. It drops to $80, and then I buy it.
It’s like Warren Buffett was my free intern. I'm buying all of his best ideas at a discount to where he bought them. You can't get a better free intern than that. And imagine if you had the 20 best investors out there today as your free interns. And you're buying all of their best ideas at a discount to where they bought them.
So I decided I should model my investing approach that way. I built a website based on this idea, which eventually I sold to TheStreet.com. I've written thousands of articles about stocks following this idea. And many of those stocks have gone up thousands of percent. I started a newsletter recently about the best ideas of these best investors.
I look for investors that tend to be longer term. They tend to not be traders. Additionally I happen to know a lot of these hedge funds. So I'm following all their filings. I don't have any information that's not publically available. I've been keeping track of this for 15 years. I even wrote a book, Trade like Warren Buffett, back in 2005, which details some of this.
Casey Research: With all that information, how do you whittle it down to the best ideas to tell your readers about?
James Altucher: Well, I've identified about 20 or 30 investors I'm most comfortable with. I'll primarily look at their new positions as opposed to their older positions. And even though I'm not claiming to be smarter than Carl Icahn when he buys his stock or Warren Buffett or whoever, I'll just look and see if it fits one of my ideas of the important trends that are happening in the economy.
Casey Research: So what kind of trends are you watching right now? Are you following any early-stage trends that the general public isn’t aware of yet?
James Altucher: I've been talking about virtual reality for a while now, but I think the public is going to start becoming aware of it very fast. Now obviously, the idea of virtual reality has been around forever, in movies and in science fiction books. But now you're seeing companies like Facebook, Google, Apple, Microsoft, and Sony spend billions of dollars buying companies related to either the hardware, the software, the patents, or future research and development. They’re hiring top-notch employees. And they’re starting to roll out products this year for the first time ever. These products will dominate the virtual reality landscape.
So this is an important trend. In the '90s the Internet was sort of the first trillion-dollar opportunity. It created trillions of dollars in wealth for investors. And then in the past 10 years mobile was another trillion-dollar opportunity unleashed by smart phones and tablets. Trillions of dollars of value were created
Virtual reality is even bigger than the Internet. Name an industry and I’ll tell you how virtual reality is going to disrupt it. That's how huge it is, and I'm already seeing it. I'm seeing it in private companies, I'm seeing it in public companies. But it's not a big enough component yet of any one public company that you can say, “Ah, this is the pure play on virtual reality.”
So I'm keeping a really close eye on all the virtual reality-related companies. For instance, Apple is buying up a lot of virtual reality patents, it’s hiring a lot of virtual reality people. It’s not a source of revenues for them at this point. But it will be in the future.
Casey Research: One problem with investing in cutting edge technologies is that the investment options are often limited. As you mentioned, there are no pure-play virtual reality stocks yet. How do you deal with that problem for your readers? How do you give them actionable investment advice on early stage trends?
James Altucher: Step number one is finding the public companies that are doing anything in this space. A great example might be NVIDIA (NVDA) making some of the graphic chip sets for virtual reality headsets. NVIDIA was big in the gaming space and now it’s going to be big in the virtual reality space.
So again, virtual reality is not a huge source of revenue for it yet. But it might be 99% of its revenue four, five, or 10 years from now. So I keep close track of which institutional investors or great hedge funds are starting to buy the stock. I keep close track of NVIDIA plus maybe 20 other companies that I feel could make a mark in this space.
I also look at the private companies because I want to see which trends are developing fastest. I just visited a company that has a deal with one of the largest real estate agencies in the world. Their deal is to make virtual reality experiences for every house that's for sale. I question if real estate will be one of the first industries massively disrupted by virtual reality (after gaming, of course).
So I keep track of a lot of private companies as well. I go to the conferences. I talk to the technologists. I talk to the investors and so on.
Casey Research: Besides virtual reality, what's another trend you're interested in right now?
James Altucher: I think deflation is a massive macroeconomic trend. Obviously, we live in a fiat-currency world where the Fed, large corporations, and the government try to manipulate the economy. And the result is often inflation of the currency.
But at the same time, we're seeing a deflation caused by massive efficiencies created by technology. Because of innovation, we’re seeing a deflation in phone prices and deflation in computer prices. In the future, we’ll likely see a lot of deflation in potential biotech drugs, if the FDA and government don’t manipulate the prices.
We’re also seeing the efficiency in solar panels going up, which means prices per unit of efficiency are going down. Many solar companies no longer need to be government subsidized. That means solar panel company stocks might eventually go up. So I keep track of that. And again, I take cues the investors who are investing in this space.
Casey Research: The last time we talked, you taught our readers a great lesson about “backdoor investing.” At the time GoPro, a company that makes high quality cameras, was one of the hottest stocks are the market. But you told us about a company called Ambarella that makes the microchips for GoPro. Ambarella stock has performed much better than GoPro stock. Are you looking at any backdoor stocks right now?
James Altucher: Yes, I recently found a “backdoor” play on both solar and virtual reality. It’s a little-known stock that’s 30% owned by various hedge funds that I follow. It’s this quiet giant that's making the chip sets for a lot of solar panel companies. And also for virtual reality companies. My guess is that you could double your money or better if you buy now and hold for the long term.
Editor’s Note: If you want the ticker symbol of this “backdoor” stock, James is happy to share it with you. He’s been sharing his top backdoor plays with a small group of early-stage investors since last fall. This one is similar to a backdoor play he found in biotech, which went up 1,100%. To learn more about his approach and how to use it yourself, click here.