Running With The Bulls
When Harry S. Dent Jr. predicted in 1989 that a long-term stock market boom was about to begin, everyone thought he was crazy. The bestseller lists were filled with doom-and-gloom volumes, and Dent had to self-publish his first book, Our Power to Predict: Revolutionary New Tools for Predicting Our Economy and the Future of Business.
Dent also foresaw falling mortgage rates, the elimination of the U.S. government's budget deficit by 1998 and the decline of Japan's economic prowess. He restated that rosy outlook in his first commercially published book, 1992's The Great Boom Ahead: Your Comprehensive Guide to Personal and Business Profit in the New Era of Prosperity (Hyperion Press). Although still swimming against the evidence, it sold 300,000 copies. Now on the bestseller lists is The Roaring 2000s: Building the Wealth and Lifestyle You Desire in the Greatest Boom in History (Simon & Schuster). This time, everyone is paying attention.
Dent argues that by 2008, the Dow Jones average will be at 40,000--at least. If that prediction seems wildly improbable, Dent makes it credible by backing up his assertion with historical data, some of which goes back thousands of years. He says economies go through remarkably predictable cycles based on the progression of spending habits of each generation, in conjunction with society's technological progress. The baby boom generation is now in its peak spending period, buying better homes and providing college educations for its children. This generation's massive economic power is being leveraged by computers and the Internet, which are bringing about a revolution in the way business is conducted.
Dent's thus-far razor-sharp predictions have been built on a solid foundation of business education and experience. After graduating first in his class from the University of South Carolina in Columbia in 1975, Dent earned an MBA from Harvard Business School. At the business consulting firm Bain & Co., he consulted and did forecasting for Fortune 100 companies before becoming CEO or chief accounting officer of several fast-growing firms, including publishing companies, a computer chip manufacturer and a real estate investment firm. Now 46, Dent is president of the H.S. Dent Foundation, a business research firm, and publishes the H.S. Dent Forecast, a bimonthly newsletter.
We asked Dent to share his insights on what the economy and business will look like in the next decade.
Scott S. Smith:What are the key trends that make an unprecedented economic boom inevitable in the next decade?
Harry S. Dent Jr.: There are six major trends. The first is the changes in information technology. It's easy to demonstrate from the study of long-term trends that computers will become 100 times more powerful than they are now and that 80 to 90 percent of all U.S. households will eventually be online. Computers will take over much of the left-brained, routine work that now occupies managers and technicians so we can
concentrate on what computers don't do well, which is right-brained, creative, complex decision-making.
Smith: Does this mean computers will become much more difficult to operate?
Dent: Actually, many will be simpler and easier to use, which will be a factor in mass acceptance.
That underscores another trend. In The Innovator's Dilemma, author Clay Christianson shows the strongest business strategies come not from high-tech niches but from low-end markets. For example, you have Southwest Airlines competing locally with buses. Wal-Mart [successfully] opened stores in places Sears didn't think were viable for a mass-merchandise retailer. These companies showed you can come into a low-end market that's unprofitable for other businesses, and with superior software, an Internet presence, direct service or some other innovative strategy, you can be successful by delivering [your goods or services] at a low cost with better service and customization. When these kinds of businesses rise into the mainstream, traditional companies can't compete because they have the wrong infrastructure, technologies and management styles.
Smith: How do you see company structures changing in the coming millennium?
Dent: The next economy will be built on what we call the network model, which is a third trend. Management decides the culture and direction of a company, sets the rules that allow good decisions to be made on the front lines, and supports them. Responsibility and accountability, even the P&L, should be down to the individual, or at least the front-line team. Every employee becomes a business and every customer a market, and management gets out of the way.
Those who specialize in assisting customers searching for certain types of products or services are what I call browsers. Their job is to figure out what their customers need and then find an individualized solution. People who provide those products and services, whether [from their own company] or from other sources, are servers. Browsers will be advocates for the customer, not sales representatives for their own companies, which servers might be. In financial services, for example, you can't be selling a mutual fund or making a commission on trades and remain objective. What's needed is a financial advisor who will assess the customer's needs and put together the right package from a huge array of choices, regardless of the source.
Smith: And the fourth trend?
Dent: The history of business since the introduction of the assembly line has been about mass production of standardized products with 60 to 80 percent of the cost in distribution. When you have a sophisticated customer, a direct marketing strategy allows for customization and little inventory, and cuts out a whole level of bureaucracy. I can buy a car directly from the manufacturer, and it only costs a couple hundred dollars extra to ship it to me. The manufacturer has to send it out here anyway, whether I pick it up at a dealer for a small fee or a salesperson sells it to me for a big commission.
Smith: Isn't the direct way of doing business hindered by the cost and time involved in shipping products from a distance?
Dent: You have to have a big-ticket item or a high enough margin, and something that's not time-sensitive. And, historically, every 60 years there's been a transportation revolution, and the last one was the jet engine in 1943. In the next five to 10 years, we should see a new generation of jets which will take speed from the current 600 mph to 3,000 mph. Then they'll start carrying small packages, not just cars or big appliances.
The biggest change, however, will be for business travel between the largest cities, so you can go from Los Angeles to Tokyo, for instance, in two or three hours. Commercial space flight is also being developed, which will allow you to go anywhere on the planet in an hour, although shipping something like a car by that kind of technology won't be profitable for about 50 years.
Smith: And door number five?
Dent: Direct warehouses for small items whose need is predictable. That's what Streamline in Boston does with groceries and Amazon.com does with books. Charles Schwab is really a warehouse of financial packages. What's needed are employees who act as consultants to help customers sort out the choices, which takes us back to the network model.
Smith: What is the final trend?
Dent: That would be what I believe will be 70 million Americans moving in the next 30 years. The largest volume will be going from suburbs to what we call exurbs, where there will be less crime, less congestion, and where you can build a house twice as big on more land at a lower cost. Instead of being 30 minutes from an urban downtown, people will move another 30 minutes away and go into the office less or telecommute, and go downtown for entertainment. The greatest movement will be to the Southwest.
Smith: But won't that migration be limited by water?
Dent: Of course, and that's why it will be such a great investment because the demand will be there but not the supply.
Smith: What about resources in the rest of the world? Won't overpopulation outstrip supply and limit growth?
Dent: Even with China's economy growing incredibly fast, oil prices, for example, have been flat to down, and you'll see that trend with other resources as well, as demand rises and supplies open up.
The real problem will be pollution, although technology can provide solutions. Decentralizing the economy will allow products to be delivered more cleanly. The role of government should be to figure out the cost of pollution and add, for example, a national gasoline tax that goes toward solving the problem.
Smith: When will the boom take place in other countries?
Dent: We have a study called the International Outlook, which details the situation for 50 countries. Europe is following our evolution, but because World War II delayed the baby boom and the development of industry there, they're five years or so behind us. Latin America has bullish demographics for the next decade, longer in such countries as Brazil, Chile and Mexico. The best outlook is for the Far East. Japan won't even start recovering for the next six years and will begin to prosper just as we're coming to the end of our boom in 2009. China, South Korea and Thailand should be strong for the next few decades.
Smith: What is the right investment strategy for taking advantage of these trends?
Dent: Ignore short-term earnings and political developments, and focus on the fact that 5 billion people are about to go through the same consumer trends we did. You need the discipline to buy and hold for the long term, with adjustments to asset allocation in a counter-cyclical way, buying stocks that are out of favor but destined to rise again, regardless of which stock sector they belong to. Use this strategy to choose a basket of mutual funds that have done well over time, not just benefited from some short-term cycle. Whatever happens, stay invested!
Scott S. Smith writes about business issues for a variety of publications, including Investor's Business Daily.
What's it all about?
Finding meaning in the next decade's boom
Lifestyle is what it's all about, not merely achieving wealth, although anyone who is wealthy would quickly agree that it is better than being poor. Surveys of happiness in this country have shown that wealth affects the sense of well-being by a factor of only 2 percent. Happiness is more about relationships, friends, family, community . . . and a balanced life. It's more fundamentally about living, learning, experiencing and growing as a human being. It's ultimately about evolution. It's what you do with your life that counts, and wealth can be a critical tool for achieving the freedom to maximize your experience and your impact on others.
Money, or economic wealth, is ultimately about giving yourself the freedom to choose the lifestyle you want and to champion the causes you believe in. That is the new ethic in this era of prosperity when many of us have already achieved the fundamentals of survival, security and living.
The ability to greatly evolve and advance one's standard of living has not always been possible for many people throughout history. We are living in the greatest period of change and progress since the printing press revolution and the discovery of America and the rest of the [New World] after the late 1400s. Such times create the greatest opportunities for advancement of people from all socioeconomic sectors.
We are in the midst of the greatest economic boom and technological revolution in history. And it hasn't occurred yet. It is about to emerge, just as cars, electricity and phones did in the Roaring Twenties. The Roaring 2000s will come with the aging of the massive baby boom generation into its peak productivity, earning and spending years and the emergence of their radical information revolution into the mainstream of our economy.
Tighten your seatbelts and prepare for the greatest boom in history: 1998 to 2008!
Reprinted from The Roaring 2000s by Harry S. Dent Jr. (Simon & Schuster).