Should Investors Stick With New And Exciting Industries Or Old And Boring Ones?

Some of us like to invest in companies which are in new and exciting industries while some would prefer the old and boring. But, which should investors actually stick to? Let’s find out.

The new and exciting

Let’s imagine that you were looking at innovative companies in new industries 10 years ago. At that time, there was hardly anything more exciting than companies involved with software.

In particular, firms such as Silverlake Axis Ltd (SGX: 5CP) and Sarine Technologies Ltd (SGX: U77) were breaking new ground by using software and other technologies to improve the operations of the banking and diamond manufacturing sector respectively.

Charting Image Export Mar-10-2015 12_21 PM

Source: S&P Capital IQ; red line for Silverlake Axis, blue line for Sarine Technologies

Since then, both Silverlake Axis and Sarine Technologies have generated impressive total returns (where gains from reinvested dividends are also accounted for) of nearly 380% and 1,300% respectively. You can see this in the chart above

With such an experience, it’s hard to bet against the notion that investing in companies involved with new and exciting industries is the way to riches in the stock market.

The old and boring

But let’s go back to 10 March 2005, this time with the mindset of wanting to find businesses that operate in supposedly old and boring industries.

Two such companies could be telecommunications outfit Starhub Ltd (SGX: CC3) and healthcare services provider Raffles Medical Group Ltd (SGX: R01). The services provided by both companies are necessities in modern living and there would likely not be any major changes happening to the way we sign up for a mobile plan or visit the hospital.

Charting Image Export Mar-10-2015 12_30 PM

Source: S&P Capital IQ; red line for Raffles Medical Group and blue line for Starhub

As you can see from the chart immediately above, from 10 March 2005 to 9 March 2015, both Starhub and Raffles Medical Group have also generated great total returns of 450% and nearly 1000%.

With such figures, there’re clearly merits to sticking with companies in old and boring industries.

Foolish Summary

So, what should we make of all the above?

As it turns out, both ways of investing are right. Both ground-breaking as well as stodgy industries can house individual companies that can turn out to be great long-term winners.

There’s no such thing as the “correct” way to invest (provided of course that our focus is to look at stocks as a piece of a business). The important thing is for us to be comfortable with our own strategies and be consistent in applying them.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.