The Warren Buffett Challenge (and Index Funds)

Warren Buffett, in the 2007 Annual Berkshire Hathaway Conference, has some interesting comments.

Warren Buffett even offered a challenge:

Name at least ten hedge funds that will beat a low-cost index funds.

His point? For "a know-nothing investor, a low-cost index fund will beat professionally managed money." But you might ask why didn't Mr. Buffett take his own advice on index funds? Warren Buffett said that he thought could beat the S&P by a couple of percentage points, "just not a whole lot better."

Other gems selectively taken directly from a Leslie McFadden Article from BankRate.com:

1. Read and think before you invest. When a 17-year-old who was attending his 10th consecutive Berkshire annual meeting asked how to become a better investor, Buffett offered some simple but golden advice. Read everything on investing you can get your hands on and fill up your mind with various competing thoughts. After doing that, it's time to get started, as investing on paper and dealing with real money is like "reading a romance novel and doing something else."

He added that when you think about buying shares in a company, think about why you might buy the whole business. If you couldn't write an essay about it, then you shouldn't buy any shares.

2. Risk is tied to the type of business and ignorance of the investor. One investor from Los Angeles asked about using volatility as a measurement of an investment's risk. "Volatility does not determine the risk of investing," Buffett said, adding that risk comes with certain kinds of businesses and not knowing what you're doing. A better approach would be to understand the economics of the business you're investing in, he said.

3. What can be done about shorting stocks? "I have no problem with shorts," says Buffett. He added that he didn't think shorting stocks poses any threat to the world. He would be fine with it if someone wanted to short Berkshire stock.

4. Better to invest in businesses tough for competitors to enter. Asked about his interest in investing in Taiwanese high-tech companies, Buffett remarked that "change is wonderful, but not necessarily for investments." In terms of predicting how a business will perform, he said it's much easier to look at consumer behavior and businesses that have big barriers to entry, citing Gillette as an example of a company with a 70 percent market share for men's razors.

5. Value investing -- what else is there? One person asked about whether Buffett's value investing strategy would apply in South Korea. Buffett said investing is all about value. "What other kind of investing is there?" he asked. "Are we going to have nonvalue investing? Are we going to have tipster investing … dream investing? I've never understood what the alternative is."

Investing in Indian Stocks from the U.S.

The Indian Economy is the second fastest growing major economy of the world, with a GDP growth rate of 9.2% (as of 2nd quarter 2006-2007). When measured in terms of purchasing power parity, it is the third largest economy of the world. When measured using US Dollar exchange-rate terms, it is the tenth largest in the world. Goldman Sachs expects India to overtake France and Italy by 2020.

For a US investor, investing in India becomes more difficult. There are plans for Indian ETFs, and there are some closed end funds, but the selection is not good.

Another way to play the Indian trend (besides investing in an emerging market ETF such as ishares EEM), is to buy Indian companies as American Depository Receipts (ADR).

Indian Banks

1. Icici Bank (IBN) -- Icici Bank has a market cap of 23.5 Billion, and a 5 year estimated growth rate of 24%.

2. HDFC Bank (HDB) -- HDFC has a smaller market capitalization than IBN with a 9.88 Billion market cap and a 5 year estimated growth rate of 29.6%.

Telecom

3. Videsh Sanchar Nigam (VSL) -- VSL is a 3.41 Billion telecom company with a forward PE of 29.70, a 5 year estimated growth rate of 10% for a PEG of around 3.

4. Mahangar Tel (MTE) -- MTE is a 2.52 Billion telecom company providing fixed-line, wireless, and other telecom services. It has a forward PE of 22.91, and a 5 year estimated growth rate of 10% for a PEG of around 2.3.

Business Process Outsourcing (BPO) and Information System Services

5. Infosys Technologies (INFY) -- Company has a market cap of 30 Billion, a forward PE of 22.82, and a 5 year estimated growth rate of 26.5% for a PEG of 0.86.

6. Patni Computer Systems (PTI) -- Company has a market cap of 1.79 Billion, a forward PE of 16.53, 5 year estimated growth rate of 21.4% for a PEG of 0.77.

7. Satyam Computer Services (SAY) -- Company has a market cap of 8.91 Billion, a Forward PE of 19.64, estimated 5 year growth rate of 26.83% for a PEG of 0.73.

8. Wipro (WIT) -- Company has a 22.86 Billion market cap, Forward PE of 22.71, 5 year estimated growth rate of 23.18% for a PEG of about 0.98.

9. WNS Holdings (WNS) -- Company has a 1.16 Billion market cap, a Forward PE of 27.41, 5 year estimated growth rate of 34.25%, for a PEG of 0.80.

Internet

10. Rediff.com (REDF) -- Company has a 626 Million market cap, Forward PE of 47.82, 5 year estimated growth rate of 45%, for a PEG of 1.06.

11. SIFY Limited (SIFY) -- Company has a 402 Million market cap, and a forward PE of 47.30.

Automobiles

12. Tata Motors (TTM) -- Company has a 7.10 Billion Market Cap and a 5 year estimated growth rate of 20%.

Drugs

13. Dr. Reddy's Laboratories (RDY) -- Company has a 2.83 Billion Market Cap and a 5 year estimated growth rate of 15%.


Trends in India, a personal take from two Indians

Results of 3 Portfolios: Cheap Growth Ready to Breakout (July 16, 2007)

In a previous article, I described the Cheap Growth Ready to Breakout Screen.

In this post, we will continue to track the performance of three portfolios. We are taking the snapshot as of Monday, July 16, 2007.

==============================
Portfolio 1: February 23, 2007     
==============================
    
============================================= 
# Symbol Start  End     Return
=============================================
1 AMX 47.15 64.87 37.58% 
2 TSM 10.91 11.68 7.06% 
3 VIP 85.18 112.50 32.07% 
4 IPR 74.30 89.00 19.78% 
5 AYE 47.90 55.10 15.03% 
6 WCRX 14.45 19.17 32.66% 
7 BRP 43.42 72.89 67.87% 
8 SCS 19.76 18.72 -5.26% 
9 MLHR 39.54 33.37 -15.60% 
10 AIR 30.61 34.10 11.40% 
11 GRT 27.59 24.32 -11.85% 
12 DVR 12.49 16.70 33.71% 
13 TGI 55.02 70.25 27.68% 
14 CRAI 53.88 49.08 -8.91% 
15 TLF 7.99 7.10 -11.14% 
16 APH 33.89 37.07 9.38% 
17 GIL  26.80 35.24 31.49% 
18 MIDD 58.88 62.79 6.64% 
=========================================
= Total   15.53% 
=========================================     
 SPY 144.10 154.83 7.45% 
 IWM 81.64 84.48 3.48% 
 EFA 76.68 83.37 8.72% 
=========================================

===========================
Portfolio 2: March 14, 2007
===========================    
    
============================================= 
# Symbol Start  End     Return
=============================================
1 TSM 11.06 11.68 5.61%
2 DISH 42.50 43.92 3.34%
3 WFR 55.05 63.04 14.51%
4 ASX 5.95 7.23 21.51%
5 SPIL 9.18 11.64 26.80%
6 BRP 44.00 72.89 65.66%
7 LAUR 59.28 61.93 4.47%
8 KSU 33.65 40.67 20.86%
9 BEAV 30.73 43.09 40.22%
10 CVO 24.50 23.42 -4.41%
11 IART 43.45 50.30 15.77%
12 KNL 23.00 22.71 -1.26%
13 AIR 30.25 34.10 12.73%
14 MYE 18.24 22.16 21.49%
=============================================
= Total   17.66%
=============================================    
 SPY 138.13 154.83 12.09%
 IWM 76.91 84.48 9.84%
 EFA 72.83 83.37 14.47%
=============================================

==========================
Portfolio 3: May 16, 2007    
==========================

============================================= 
# Symbol Start  End     Return
=============================================
1 ESV 58.45 60.86 4.12%
2 GSF 65.98 72.07 9.23%
3 TDW 64.90 75.62 16.52%
4 KB 93.35 91.96 -1.49%
5 FCX 71.29 92.94 30.37%
6 VLO 72.03 76.08 5.62%
7 NBG 11.59 12.54 8.20%
8 ACGY 21.35 26.72 25.15%
9 AYR 35.98 38.78 7.78%
10 FTI 73.68 88.97 20.75%
11 HXM 62.29 61.50 -1.27%
12 SZE 57.58 57.11 -0.82%
13 SLB 76.50 90.54 18.35%
14 CLB 92.77 106.41 14.70%
15 CKR 20.38 19.51 -4.27%
16 CEPH 80.14 82.28 2.67%
17 TDK 87.55 92.02 5.11%
18 SNDA 26.65 33.04 23.98%
19 LKQX 24.30 25.38 4.44%
=============================================
= Total   9.96%
=============================================
 SPY 150.95 154.83 2.57%
 IWM 81.26 84.48 3.96%
 EFA 80.14 83.37 4.03%
=============================================

---

SPY is an ETF that represents that S&P 500 US Large Cap Index.
IWM is an ETF that represents the US Small Cap Russell 2000 index.
EFA is an ETF that represents the developed international market index covering Europe, Japan, and Australia.

Based on this, the three portfolios performed (until July 16, 2007)

1. February 23, 2007: 15.53% return, outperforming all three indices by 8.94% to 14.19%.
   
2. March 14, 2007: 17.66% return, outperforming all three indices by 3.19% to 7.82%
   
3. May 16, 2007: 9.96% return, outperforming all three indices from 13.63% to 15.09%
   

So far, this screen seems to be performing very well. Let us continue to monitor.

Cheap Growth Ready to Breakout Screen

In order to get more consistent results in the market, I've been trying to find good quantitative stock screens.

I managed to find one screen that seems to be working well:

1. Forward PE < 20
2. 5 Years Growth > 20%
3. Price above 200 day moving average
4. Price between 0 to 5% above 50 Day moving average
5. Price within 5% of 52 Week High.

My theory is to buy stocks that have great growth but are undervalued in the market. In addition, the stocks should be making higher highs, be within reach of a breakout, and yet be at a good accumulation point (slightly above the 50 day moving average).

In a question regarding whether to buy 52 week highs or 52 week lows, Jim Cramer on Stockpickr.com) says that:

"They dont get on the 52-week-high list for nothing.
Companies that get on it get there because they are in
the right sector and have the best execution. That's a
better list to buy on than just about anyone i know,
particularly on a 5% pullback.

Source(s):

I like IBD for this and Lee Cooperman, one of the great
investors, who emphasized this view to me when he was
running research at Goldman."

Part of the screen I developed seems to match what Lee Cooperman of Goldman Sachs has found out. It is good to buy 52 week highs especially on a 5% pullback.

Also, rather than using pure PE to Growth ratio, I prefer to use a PE of less than 20, and 5 year growth rate of greater than 20, guaranteeing us a PEG of less than one. Since the 5 year growth rate is less reliable than the forward PE, by choosing stocks with a low PE, we'll have a greater level of safety if a companies 5 year estimate starts going down.

I managed to create three portfolios using this screen in the past and in another article (here), I will check on the performance of all three portfolios.

Trends in India

When investing in stocks or countries, it's a good idea to get a background in the country and the culture:

Question:

I'm interested in learning more about India and Indian trends (may affect my investment):
1. Are Indians savers or spenders?
2. Do you know how fast India's GDP is growing?
3. How many cars does an average Indian own?
4. What's the approximate interest rate in a bank?
5. How many Indians own a home? Is it still affordable?
6. What do you think of:
TTM -- Tata Motors
SAY -- Satyam
INFY -- InfoSys
IBN -- ICICI Bank
7. Is the middle class growing?
8. How many people have cell phones?
9. How many people have DSL or Cable modem?
10. Are internet cafes popular?
11. Is there a lot of traffic in India?
12. Is there a lot of pollution?
13. Do people text on cell phones (SMS) or use their voice?
14. What are the major trends in India right now?
15. Are workers leaving India in large numbers?
16. How popular is McDonald's or other American Fast Foods?
17. What kind of foods are popular?

Any help is appreciated.

Answers:

A: "Sony" answers:

1. Are Indians savers or spenders?

It depends upon how the person is earning....if he is earning more than his EXPECTATION, then he will splurge too much...
otherwise, if he is earning the hard way, same way he spends.
Generally, people are savers here, they save more to invest in ways to produce more money.


2. Do you know how fast India's GDP is growing?

check here http://en.wikipedia.org/wiki/India


3. How many cars does an average Indian own?

There is HUGE difference in equality. More than 90% don't have a car at all.


4. What's the approximate interest rate in a bank?

In a savings account, its around 8%.

5. How many Indians own a home? Is it still affordable?

Number of people owning a home is increasing, but the real estate prices are considered high. In metro cities, the prices are considered a BOMB, but still people are buying, as i said, there is a vast difference in equality.

6. What do you think of:
TTM -- Tata Motors
SAY -- Satyam
INFY -- InfoSys
IBN -- ICICI Bank

They are top companies in their sectors, they are market leaders in india with an excellent management.

7. Is the middle class growing?

VERY MUCH!!! A common middle class person has a cellphone, watches Movies in malls, eats in Dominoes, buys international brand garments often, wears a swiss watch, has a computer etc. etc.

8. How many people have cell phones?

Even beggars ;-)

9. How many people have DSL or Cable modem?

Not sure. But less than 1%.

10. Are internet cafes popular?

They used to be, but now cos of government's strict rules over some issues, their is very less income left to owners. The internet cafe people are now more interested in group gaming.

11. Is there a lot of traffic in India?

Only in Metros. But throughout india, the road infrastructure SUX!!

12. Is there a lot of pollution?

Only in Metro cities.


13. Do people text on cell phones (SMS) or use their voice?

Most people SMS :D


14. What are the major trends in India right now?

I think everything is booming. IT sector, public services, Electronics Media, BPO's etc are on top.


15. Are workers leaving India in large numbers?

No, not sure. The ones who have been out want to come back, but people who have never been out, become highly excited about going out.


16. How popular is McDonald's or other American Fast Foods?

Very Very Famous. Anything which has rocked the west needs no publicity or hype to make them a success in india.


17. What kind of foods are popular?

People just love to experiment. Everything is welcomed. Mostly pizzas, chinese food etc.

Source(s):
I have answered just in a casual way, don't mind. But the information is true to my knowledge nevertheless. I liked answering ur questions ;-)


B: "For Fun" answers:
answeer to question no 5: if u want to know the answer of this question please take in to consideration the indian culture

everybody dreams of one of his home his ideal home !
it is a thing of pride and respect to construct or purchase his dream house
depending upon what is his financial capacity and where he is living
every indian feels it is his dutry to give this house to his son/s so his sons etc are comfortable and live nicely the way he spent his life !
the house is a great emotional attachment to him and his family and he rarely leaves that place or sells unless he is in great trouble.
if the son sells that house it is shame !
u can say it is deep rooted desire of every indian to have his own house and he will do all possible things to have it!

he dreams the house there for hundred years and his children and grand children living and thanking him for what he did in his life time !

it gives great mental satisfaction and he feels one of his very big duty is carried out by him and is always proud of it

now as the banks and other institutions r givning easy loan for the dream house many peopel r taking advantage of that

it is my estimate that atleast 40% people do have their own home or r in process of getting the same
we can consider the up side % as 55%

the income has gone up very rapidly in last 10/15 years and surely more r in line to have their dream come true!

remeber indian population is one billion + and the people r from all different standerds


Credits

Thanks to the nice people at Yahoo Answers.

"How can a teenager (11-17) start investing in the stock market?"

Question:

I'm a (11-17) year old student and I have some money I want to invest. How do I start investing?

Answer:

Congratulations on saving your money and trying to invest it!

In the United States, many US discount online brokerages, such as E*trade (www.etrade.com) require you to be 18 years or older.

So what you can do is ask your parents to open an account for you. One example is an Educational Custodial account. Your parents will control the account until you turn 18 or 21. Read the other requirements and benefits on the website:

There is also a Coverdell Account (formerly known as Education IRA), or an IRA for Minors (for your retirement!)

In the meantime, I recommend that you get your parents involved. Have them learn more about Investing. Both you and your parents should start by reading Investing for Dummies by Eric Tyson.

Once they open the account, you and your parents can decide how to invest.

For amounts $500 or less, you are better off choosing one good mutual fund (you purchase shares in a fund, and at the end of each day, the mutual fund price goes up or down, and you lose or gain money each day. After a period of time (for example, 10 years), you may decide to sell your mutual fund. At that time, you may have a profit (or a loss). The money is all yours now).

You can look at all the choices available in your brokerage account. If you use E*Trade, you can choose from among the more than 7000 mutual funds. Choose only mutual funds that are four or five start Morningstar.com rated and have no-load (you don't have to pay a special percentage to the brokerage when you either buy or sell), and no transaction fee.

Whenever you get more money, you can purchase more shares in the mutual fund. Look for either a good mutual fund that focuses on large US companies, or a diversified mutual fund that invests in international stocks.

If you have $1000 or more, you can choose to have fun. Are you interested in learning more about the stock market? You are young, and that means that you can take more risks with the money. Even if you lose it all, you'll have enough time to make it up in the future.

One good way is to continue reading about stocks and the stock market (Remember the Investing for Dummies by Eric Tyson book above?).

Then, as I mentioned before, get your parents involved. You can research stocks together. A good stock to research would be stocks you already know. Do you like McDonalds? maybe you can invest in "MCD". Do you like Games? Then consider Gamestop (GME). Of course, don't just buy it because you use the product. This is just a starting point. Research the stock!

Since you don't have that much money, just invest in one stock (or ETF, an Exchange Traded Fund. An ETF is a mutual fund that you buy and sell just like stocks) and just see how it goes up and down, and how what you do (for example, buy more Big Macs) affects the companies bottom line.

Also, watch "Mad Money" on CNBC hosted by former hedge fund manager Jim Cramer. Lots of those in Generation Y like him. He may sound a bit crazy on the show, but in reality, he as a very good hedge fund manager before he did the Mad Money show. (Video of Jim Cramer here.)

To be realistic, expect a market return of 10% per year over a long time. Of course, you can lose 40% in a year, or gain 40% of a year, for example. If you hold an individual stock, the stock will be more volatile. Don't be surprised if you go on a rollercoaster ride.

Good luck!

Credits

My own experience plus inspiration from Jim Cramer's article on teaching your children about investing.

The Sectors in Bull Market Mode

We are in a bull market right now, with the S&P at all time highs, and the Dow near all time highs. So what sectors are working now? What are the long term trends worth investing in? (In this article, trends mean 3 years or longer.)

1. Agriculture:

In 2002, there was an influential US Farm Bill, "The Farm Security and Rural Investment Act of 2002." Prior to this, according to a Forbes Article, " few stocks had big moves prior to the enactment of the 2002 farm bill. Consider AGCO (AG), which sells combines and other farm equipment. Over the course of the year prior to the May 2002 signing of the farm bill, AGCO's shares climbed 150%, vs. a 14% decline for the S&P 500. Archer Daniels Midland (ADM) and Deere & Co. (DE), though not as frothy, also rose nicely in that time period." The push towards Ethanol is also another reason for the bull market in agriculture.

Jim Cramer prefers Deere (DE), who makes the agriculture farm equipment, Monsanto (MON), a biotech company that makes the seeds, and Chemical and Mining Co. of Chile (SQM), a fertilizer play in the agricultural sector.

Forbes likes companies such as Archer Daniels Midlands (ADM), AGCO (AG), and CNH Global (CNH), among many companies in the list they provide as beneficiaries of the farm bill.

2. Machinery

Similar to the farm bill, the $287 Billion US Transportation-spending law in 2005 has been good to machinery stocks. Beneficiaries include companies such as Caterpillar (CAT), and Terex (TEX). As a bonus, companies like Caterpillar (makes of construction equipment), have international exposure as well.

3. Infrastructure

In this area, Jim Cramer likes Foster Wheeler (FWLT) and McDermott (MDR). Foster Wheeler, "provides engineering and construction services to the oil and gas, oil refining, chemical/petrochemical, pharmaceutical, environmental, power generation, and power plant operation and maintenance sectors worldwide. It operates through two groups, Global Engineering and Construction Group (Global E&C Group), and Global Power Group." McDermott (MDR) "operates in three segments: Offshore Oil and Gas Construction, Government Operations, and Power Generation Systems."

Fluor (FLR), is another company in this area. Again, this sector also benefits from global growth.

4. Aerospace and Defense

All those old civilian and military planes need to be replaced. We are in the middle of long aerospace cycle. The main play is Boeing (BA), who benefits from the cycle and also from Airbus' troubles. Other companies in this area include BE Aerospace (BEAV), which manufactures and markets cabin interior products for commercial aircraft and business jets, Northrop Grumman (NOC), an aerospace and defense company, Embraer (ERJ), maker of jet and turboprop aircrafts for civil and defense aviation markets, and Transdigm Group (TDG), a 2 Billion Market Capitalized Company that "engages in the design, production, and supply of engineered aircraft components for use in commercial and military aircraft worldwide." Indirectly, companies such as Allegheny Technology (ATI), creator of specialty metals, benefits from this cycle, as newer planes need lighter materials to save fuel.


5. Oil, Gas, and Energy

Oil, Gas and Energy are in bull market mode because demand is high, and supply is low. The US and Emerging Markets need these to continue their fast growth. And supply is limited, so aside from oil, oil services company which do offshore drilling, supply services to oil companies, companies which search for oil, companies that make and manage offshore rigs are benefitting greatly.

Companies include integrated oil companies such as Exxon Mobil (XOM) and Conoco Philips (COP), oil services companies such as Halliburton (HAL), and Schlumberger (SLB), refiners such as Valero (VLO), offshore drillers such as Global Santa Fe (GSF) and Ensco (ESV), transport vessels for offshore oil services such as Tidewater (TDW), and oil services and rig companies such as National Oilwell Varco (NOV) and Transocean (RIG).

6. Minerals

Gold, Copper, Silver, and other materials are in bull market mode. Once again, this is low supply, high demand. The US, as well as emerging and other international markets are growing! They have an insatiable appetite for these materials. Companies include Freeport-McMoran (FCX), a gold and copper company, and Jim Cramer suggests Lundin Mining (LMC) as well, as the runner up.

7. Telecom especially Emerging Market (Wireless) Telecom

Wireless use, and advanced telecom services such as mobile internet, are growing around the world. Products such as the Apple (AAPL) Iphone, and Research in Motion's (RIMM) Blackberry help drive demand, and countries around the world are increasingly using these services. In the US and in Europe and in Japan, wireless penetration is reaching levels from 70-100%. However in Emerging Markets such as Mexico, and Latin America, wireless penetration is at much lower levels, and is expected to hit 60% penetration in the region only in 2010. That means that there is great opportunity and growth in this area. As an example, Mexican (and South American) telecom play, America Movil (AMX), still has a forward PE of only 15.51, and a 5 yr estimated growth rate of 31.6%, for a PE to Growth ratio of around 0.5, very cheap!

While AT&T (T) is a play on North America Telecom, the greater growth (at a reasonable price) is in emerging markets. Companies include America Movil (AMX), for Mexico and South America, NII Holdings (NIHD) for Latin America, Vimpel Communications (VIP) for Russia, China Mobile (CHL) for China, and Vodaphone (VOD) for Europe, Middle East, Asia and Africa.

8. Mobile Convergence/Wireless Integrated Devices/Handsets

Mobile convergence, where different technologies such as voice, data, and video come together in a single handset, is continuing to grow at a rapid pace. Leaders include Apple (AAPL) with their new handset, Research in Motion's (RIMM) popular Blackberry product, and other companies like Nokia (NOK). As new services emerge, the infrastructure to provide fast, high quality video on these mobile devices will play an important role.

9. Location Based Services

Location based services currently depend on GPS, the Global Positioning System. The companies which use these technlogies are doing well in the market, and will continue to do well, as anything that moves, from cars, with automatic navigation devices, to military weapons, to people holding mobile converged devices such as advanced cellphones will have GPS. Garmin (GRMN) is a company which provides Location Based Product devices. Navteq (NVT) is a company which provides the digital maps, and its competitor is a private company called Tele-Atlas. Sirf Technlogies (SIRF) makes GPS chips. Though it has struggled in the recent past, there are signs that the stock is stabilizing. Competitor includes Broadcom, who bought out their competitor Global Locate. Trimble Navigation (TRMB) is another company providing GPS systems. They even bought the company AtRoad, which tracks fleets of vehicles. Software maker MapInfo (formerly MAPS), was recently bought out by Pitney Bowes (PBI). Indirectly, telecoms will benefit, advanced handset makers will benefit, and companies such as Google (GOOG), may be prime candidates in creating location based service applications such as local GPS search supported by location based advertising. There is great growth in this industry!

10. Computer and Video gaming

Computer and Video gaming are in the middle of a strong cycle, as three major gaming consoles are out from Sony (SNE), Microsoft (MSFT), and Nintendo (NTDOY.pk). Sony also has the portable gaming device Sony PSP, and Nintendo has the portable gaming device Nintendo DS. Demographics also support growth as Generation Y is the 2nd largest group (after the Baby Boomers), and many people in Generation Y like to play games. There are many plays in this sector from Retailers (Gamestop (GME)), console makers (Nintendo (NTDOY.pk)), game makers (Electronic Arts (ERTS), Activision (ATVI)), graphic chip makers (NVidia (NVDA)), and gaming accessories (Logitech (LOGI)). More on this sector and analysis by the numbers here.

11. Online Gaming in Emerging Markets such as China

There is great growth in online gaming, especially in China. There is a growing middle class, and increasing broadband penetration (internet cafes included). In China and Korea, online gaming has become a very popular pasttime. Two good online gaming plays in China include Shanda Interactive (SNDA), and The9 Limited (NCTY) who has the right to bring World of Warcraft to China. Shanda Interactive has a free model where people can play the games for free, but pay real money for items in the game. Article on the Growing Online Gaming Market in Emerging Markets here.

12. Internet, Search, and Internet Video

The internet, the backbone of the major Information Revolution, remains strong. People need to find relevant information from all the data, and companies like Yahoo (YHOO) and Google (GOOG) help do this. Google (GOOG), the groups bellwether company, even purchased YouTube, a popular internet video company. Baidu (BIDU) and Rediff (REDF) service both the Chinese and India markets. Brick and Mortar Retailing continues to be challenged by internet retailing spearheaded by Amazon.com (AMZN) and EBay (EBAY). Infrastructure companies, such as Akamai (AKAM), help make delivery of information better and faster.

13. International Emerging Markets

Emerging markets such as Taiwan, Korea, South Africa, China, Mexico, Brazil, India and China are in bull market mode. This trend will last more than a few years, and this would appear to be part of a much longer trend. Since many companies benefit, an investor could invest in a broad based Emerging Market Exchange Traded Fund such as ishares EEM, and Vanguard's VWO.

---

Other Sectors to Watch

Besides the sectors which are working well right now, there are other sectors worth watching. Some may start their run right now, while others may take more time to make their gains.

1. Optical Networking and Networking

More data is being placed on the internet, especially internet video. High Definition (which requires more bandwidth) will become more of a standard. Advanced services such as Internet TV (IPTV), and video demand will require much greater bandwidth. Eventually, the system will not be able to handle the demand for greater bandwidth. Next generation applications will require much greater bandwidth. Right now, even AT&T's top DSL Broadband package supports 6 Megabits per second (mbps). In Korea, broadband penetration is around 70%, and their internet speeds go up to 50 mbps, over 8 times faster than AT&T's top speed. The US is behind some countries such as Korea!

Optical Networking is a way to get much better download speeds. The best way to play this is througn Corning Glassware (GLW), who have the added benefit of servicing LCD and flat panel displays (another growth area). Ciena (CIEN) is an optical networking play. Speculative plays include $6 stock Level 3 Communications (LVLT) and $4 stock Finisar (FNSR).

I believe we are the verge of a breakout in the Optical area.

2. Obesity

Obesity is a long term problem. Two possible ways to play this trend are through Weight Watchers (WTW) and NutriSystem (NTRI). NutriSystem looks like the good growth play right now.

3. Specialty clothing

Certain companies just have a special story and product. A good example is Crocs (CROX), maker of a very popular type of footwear. Other companies include UnderArmour (UA) and Gildan Activewear (GIL).

4. Long-Term Care Facilities

Parents of Baby Boomers and eventually the Baby Boomers may need to use Long Term Care Facilities such as Manor Care (HCR), Brookdale Senior Living (BKD), and Sunrise Senior Living (SRZ). We need to watch this group for better action.

5. Healthcare Information System

Eventually, healthcare needs to have integrated software systems. The companies which provide these solutions include Cerner (CERN), Allscripts (MDRX), and Quality Systems (QSII). While this is a growth area, we may have to study the companies carefully to determine the better play.

6. Specialty and Niche Product Companies

Companies which provide a specialty or niche product have a competitive advantage. Examples might be #2 Energy Drink Maker Hansen Natural (HANS), and robotic surgery company Intuitive Surgical (ISRG).

7. Gambling Companies

There is great growth in the gambling and gambling equipment industry. Macau, in Asia, is being transformed into the Las Vegas of the East, and many companies can benefit. If internet gambling (which has taken a hit based on some laws restricting them in the US) comes back, this group will grow even more. Some companies in the gambling and gaming area include Las Vegas Sands (LVS), and MGM Mirage (MGM). Gaming equipment companies include International Gaming Technlogy (IGT), Scientific Games (SGMS), and ShuffleMaster (SHFL).

8. Leisure and Entertainment

Baby Boomers are in their peak spending years which may finally peak in 2010, until Generation Y comes of age. Also, Generation Y, as represented by Generation Y reporter of TheStreet.com Cliff Mason, appears to be more willing to spend money on leisure and entertainment. During these periods, leisure and entertainment companies should benefit.

Companies in this sector include gambling companies and gambling equipment companies (as mentioned above), hotels and resorts such as Starwood Hotels and resorts (HOT), Cruise Ship Companies such as Carnival Corp (CCL), and companies such as Vail Resorts (VAIL) and food and restaurant companies such as Darden (DRI). Powershares ETF "PEJ" covers this area, and the companies in the ETF are listed here.

9. Water

Some people say that water, and clean water, may be the next oil. An ETF which covers this area is powershares PHO, which holds companies such as Mueller Water Products (MWA) and Tetra Tech (TTEK).

10. Environmental Cleanup and Waste Management

Some companies have to cleanup our mess and all or waste including industrial waste, and radioactive waste. According to a Motley Fool article, the trends driving growth in this sector include growth in consumer spending on disposable items in growing populations. Also, there is a rise in industrial waste services as more companies utilize hazardous products in production facilities. There is a greater concern for the environment, so these companies will benefit. Companies in this area include Waste Management (WMI), Clean Harbor (CLHB), and American Ecology (ECOL).

11. Stock Exchanges

Stock Exchanges are in bull market mode. There is great consolidation in this area, and people speculate there may be only a few worldwide stock exchanges. Companies include the InterContinental Exchange (ICE), Nasdaq (NDAQ), New York Stock Exchange-Euronext (NYX), CME Group (CME), and Nymex (NMX).

12. Future Gen Y Plays: Housing, Automobiles, Weddings, Babies

Yes, housing is down right now, but we have to look many years into the future. Generation Y is a very large group, second only to the Baby Boomers. They will eventually (many years from now) be buying their first homes. They will also make other large purchases such as automobiles, and many will be getting married, and having babies. This sector trend will be good for companies in these areas, but we may have to wait many years to play these trends.


Credits

Through my research and experience, I found these bull markets. Jim Cramer mentions six wild bull markets, and those six are incorporated above (with my comments), and a long time ago, Jim Cramer also suggested looking into areas such as HealthCare Information Systems.