The stock market cares little about the past, but is obsessed with what is likely to happen in the future.

For proof look no further than the market’s reaction last week to Nvidia’s Q4 earnings report…

Nvidia, a top manufacturer of graphics processors that enable high performance games, servers, and supercomputers reported revenue was down 21% and net income was down a whopping 35% versus the prior year.

How did the stock react? It went UP 12% the day after the report was released!

This odd reaction happened after Nvidia’s CEO told analysts that the company is projecting a return to growth later this year. Nvidia’s stock is also benefiting from the tailwinds of the AI hype cycle I talked about last week.

Rightly or wrongly, the market is willing to look past Nvidia’s weak business performance in the present and pay up for future potential growth (driven by AI) that hasn’t yet occurred.

This happens all the time in the stock market.

And it’s why I spend significant time reading about and thinking about trends in society. Identifying trends early can be an incredibly profitable pursuit!

How does an investor identify trends early?

The first place I start is in daily life. Rising trends surround us, pretty much everywhere we go, from the shopping center to the office and especially online.

The key is to train your brain to spot trends and then ask follow up questions like:

1. Are you truly early in spotting this trend or has it been around awhile?
2. Is this trend a fad that will quickly burn out or something more significant?
3. Can this trend disrupt existing businesses and/or market shares?

One way to gauge how early you are in spotting a trend is to use Google Trends to search related keywords and their relative popularity in search engines over time.

Here’s an example of “pickleball”, a rapidly growing racquet sport. It seems to have exploded in 2021 and is especially popular in North America:

There are also paid services that will surface and track trends such as Exploding Topics. Consulting firms like Gartner sell trend reports to enterprises. Occasionally their hype cycle charts get published publicly.

One of the most abundant sources of trends is of course, social media.

Niche communities on Reddit, videos on YouTube, viral Tiktok or Instagram posts, tweets, and even ads on those platforms can open your eyes to powerful rising trends.

If you have kids, you also have a valuable window into interesting culture shifts and emerging hot brands. Enlist your tribe in the hunt for big fresh ideas! 👨‍👩‍👧‍👦

YOU are also an expert in specific hobbies & passions, and probably your field of work as well. Ask yourself: what is changing in the areas you know best? What are the major developing trends?

That should be a solid starting point for exploring rising trends. In my next newsletter post I’ll talk about how that can translate into stock ideas that may benefit from a stock market hype cycle.

Until then, have a strong start to your week!

Cheers,

Travis

P.S - I'm still a big fan of pickleball even after cutting my forehead on my racket backswing this past weekend 🤕