Friday, September 23, 2016

Structural end-market growth...

From Quality Investing: Owning the best companies for the long term:
Whereas cyclical growth refers to episodic expansions, structural growth refers to more permanent expansions supported by persistent trends deemed likely to endure. The inherent prognosis, however, warrants skepticism, as the observed pattern is often in fact cyclical and merely temporary. Many emerging market trends previously considered structural seem, in hindsight, to have been more cyclical in nature. 
Despite this, there are a number of long-term trends that are more likely to prove sustainable than others, ranging from disease prevention to urbanization and aging demographics in developed markets. But it is not safe to assume, for instance, that all people on earth want to own a certain number of cars or spend a stated portion of income on beer. 
There are many examples of erroneous assumptions along these lines. A notable one occurred in the US golfing industry. Growth was projected to increase in tandem with a rising population, favorable demographics, and increasing wealth. The projection was wrong. Between 2006 and 2013, the number of golfers in the US fell by 18% despite 6% growth in the US population. A broader example is occurring in China, where once soaring consumer appetites for goods like cognac and pastimes like gambling have abruptly reversed. Only time will tell if this reversal is temporary or permanent.