White Bull: Supertrends is a very large-scale work. It's as much a scientific work in the vein of Jared Diamond's books as it is a business book. Why do you consider it important for European investors and entrepreneurs to delve into this mass of economic and historical detail?
Lars Tvede: Because if you read studies from an investment bank, they will often just go into a sector and explain why that sector may grow. Then you may sit back with some doubts about whether the worldview behind it is realistic at all. Many of the things that I have found out and written about surprise people. They don't think it is true. For instance, when you say that the global economy will grow 400% in the next 40 years, people say that's not possible, we don't have the resources, we don't have the environment that can sustain that. Or if you say that the shortage of labour that we are confronting will actually be dealt with, not through mass immigration but because computers will become like people, people say "do you really think that?" So I thought it was necessary to take a deep dive and look at everything and then afterward go through the sectors and the investment possibilities.
Apart from that, I think it is just plain interesting. I cannot live my life and not be interested in how politics, demographics, environment, conflict, resources, business and technology intersect.
WB: You have outlined a number of supertrends that are in the process of playing out for the next 40 years. Which are the three most important trends that European investors and entrepreneurs should be taking into account?
LT: It depends on what sector you work in, but the first one is definitely massive economic growth in emerging markets. So largely also a shift in economic power from the West to the East. The second one to many companies is aging. The fact that we will have 1.6 billion more retired people over the next 40 years. The third one is the continued exponential growth in information technologies, including computing and genomics.
WB: Based on your analysis, you have an optimistic view of the future in Brazil, Russia, India, China as well as other emerging nations like Vietnam. How can European-based businesses best take advantage of those bright futures in other part of the world? What particular opportunities do you see in Europe?
LT: By continuing to do what we have already been pretty good at doing, which is to accept that manufacturing and some service functions will move out of our countries and that we become managers,
designers, and owners. If I should give a good example of what more of Europe will look like, I would take Switzerland. Switzerland is really largely a country of managers and owners now. Many of the Swiss companies produce almost nothing in Switzerland but they do generate profits and profit continues to flow back to Switzerland.
WB: You talked about the trends, now what do you see as the most profitable sectors for entrepreneurial activity in the next decade?
LT: There is a difference between the most profitable point if you invest in mature companies and if you work as an entrepreneur. For the former I would look towards real estate, which is poised to start the next upcycle, as well as finance, commodities, and luxuries as the most promising sectors. For entrepreneurs, the two most promising sectors are IT and biotech. There's also lot of investment going on in alternative energy. I think some of that money is ideology-driven while some of it will be good business, but personally I don't think it will provide as great opportunities as IT and biotech.
WB: You counted 47 distinct bubbles and busts since 1557, one every 9.6 years. And it's been 10 years since the NASDAQ tech bubble. Is it important for venture capitalist and investors to take these boom-bust cycles into account or is it largely irrelevant to their activities?
LT: I think it's very important. When entrepreneurs and VCs invest, it is evident that they have a fairly long time horizon so they cannot foresee how condition will be when they want to exit. But it's important to
recognize a bubble for what it is and take advantage of it, not get carried away and think it will continue forever.
WB: There's a big difference between a cycle and a trend.
LT: There's an enormous difference between the two because a cycle is driven by something that cannot be sustained. It's really an oscillation, or a vibration, if you will.
WB: I found the idea of a link between cyclical scares and cyclical bubbles to be a fascinating one. What are the most likely scare or bubble to be at the moment and what do you suspect will be the next one?
LT: You know, we cannot know for sure, but I think global warming is a scare. That doesn't mean global warming doesn't exist, but it's blown out of proportion. In terms of the next financial bubble we
will see, I think real assets is a candidate because the wealth that will be generated in emerging markets has to be placed into something and because the volatility of financial assets has been so high, a lot of that money may go into real assets. Physical assets, property, art, wine, collector cars, anything that is tangible, that you can hold, see, and touch.
WB: How can investors and entrepreneurs capitalize on understanding "the ketchup effect" in inventories, capital spending, and property?
LT: Once you have studied what the phenomenon is, you will find it easier to understand forecasts from the most skilled analysts so you have a sense of how long it will take before you get out of a difficult period and plan accordingly. If you know nothing about it, you might get carried away both with fear when situations get difficult and then becoming overoptimistic when things are very good. Then you make planning
errors.
WB: If what happened in 2007-2009 is partly textbook business cycle stuff, as you write, does this imply that we are in the early expansion stage of the next growth cycle?
LT: Yes we are. Whereas there is a lot of bad news and there are some serious balance problems in a number of Western economies, the growth in the private sector and also in consumer spending has
reached self-reinforcement levels. It starts feeding on itself and it's quite solid. Of course, most of it comes from emerging markets or is driven by emerging markets. So again, the answer is yes.
WB: Given the changes that have taken place in the VC market since the tech bubble burst, what do you see as the most effective pathway to exit for entrepreneurs?
LT: I think the IPO market will come back. I think the next year or year and a half, there will be a lot of trade sales. But following that, I think the IPO market will normalize and there is definitely a possibility that equity prices start rising significantly after 2012 when we have a resolution of some kind to all these debt problems we have now. I don't mean that they'll go away, but we'll begin to understand how they'll be addressed.
WB: Thank you, Lars. We will look forward to discussing these things in more detail in September at the Dolce Sitges. Those who are interested in learning more about Lars's new book, should visit http://www.amazon.com/Supertrends-Winning-Investment-Strategies-Decades/dp/0470710144 or http://www.larstvede.com