In one man's lifetime

Considering the changes to Australia and the world in my friend’s 95 years started me thinking about trends, and how investors could draw lessons.

PORTFOLIO POINT: The Australia my friend was born into in 1917 has changed markedly, and the trends contain lessons for astute observers.

This week was a first for me '” I attended a 95th birthday celebration for a business colleague, Hugh Rogers. I am not sure if Hugh ever expected to reach such a milestone, but he is sprightly and made everyone understand he is 95 not out and is looking to make a century.

What made the birthday luncheon so interesting was that IBISWorld founder and chairman Phil Ruthven did a comparison between 1917 (when Hugh was born) and 2012. And that comparison made us think about what was ahead, which is a rather unusual thing to do at a 95th birthday celebration.

Few people knew Hugh Rogers because he did not seek public limelight, but he was an important force in developing many of the executives that came through the Amcor ranks and played an enormous role in the development of the National Party, formerly the Country Party.

When he was born, Australia had a population of 4.9 million with an average age of 24 and of course we were in the middle of the First World War. Now the population is up to 23 million and the average age has risen to 34. Our gross domestic product has risen 30-fold and our standard of living almost six-fold. Back in 1917 it was a war year and productivity growth was 2.5% – it needed to be high to cover the males at the war. In Australia in 2012, after a series of miserable years, our productivity growth is 0.6%. This is a damning indictment of Australian government and management. There were a lot more wise management heads back in 1917. The biggest employer of labour then was the agricultural industry, which employed 513,000 people or over 10% of the population.

Ninety-five years on, it is the health sector that is the largest employer, with 6% of the population or 1.4 million people.

In 1917 Europe was at war and Britain had been the most powerful country on earth. We didn’t know at the time but with the help of another war starting in 1939, Britian and Europe were headed for a much reduced role in the world. Now it is 2012, Europe is again in chaos but this time it is economic, not the chaos of guns. If Europe is able to shed itself of some of the problem countries such as Greece and Portugal, it may once again become an important force, although it will be Germany and perhaps Russia that will be the driving force.

Females represented less than 20% of the workforce in 1917 and almost all were single. Now that proportion has doubled and there are more married than single women employed. And if you look at the industrial changes, you see the greatest variation has been the decline of agricultural industry, from 26% of GDP to just 2.6%, while mining has risen from 3% to 9% and is set to go higher. Manufacturing is steady at 8.6%, but it has been higher during those 95 years. Retailing has halved from 8.8% to 4.2%, while the new industries of communications and media have emerged at 3% of GDP, and will rise further.

These are monumental changes. Very few companies that existed in 1917 have survived to 2012. Exceptions include Elders, BHP Billiton and Bank of NSW (now Westpac). I wouldn’t attempt to try and forecast the next 95 years but you can see some interesting trends looming in the next five to 10 years. Health expenditure will continue to rise. It should be represented in your portfolio.

There is no doubt this is going to be the age where the internet becomes more powerful in our decision-making processes. Whereas we currently use the internet to find facts, in five years’ time we will ask computers questions about investment alternatives, household budgets and other household and business strategies. This will lead to some strange decisions but overall it will be a much more logical society, at least in my view.

I think we are going to see a great improvement in Australian management because the high dollar is going to force us to get back to the management attitudes of 1917 and lift our productivity. Clearly the current Canberra chaos is likely to lead to an election victory for the Liberals – by a bigger margin than anything we have seen – and it might enable some clear decisions to be made as they are obviously necessary.

But where will the growth come from? We are clearly placed in the best part of the world and a lot of Australian companies are going to test their skills in Asia. But I think one of the biggest growth industries will be Chinese tourism, which will become one of the biggest non-government employers of labour in much the same way manufacturing was in the postwar era and agriculture was 95 years ago.

In terms of investment strategies, many people are reluctant to invest in gambling stocks but for those that wish to punt, Crown Casino and Tabcorp (which owns the Star City casino in Sydney) are going to be big beneficiaries. Crown is much more a pure-play because it aims at the Chinese high-rollers market, both in Australia and Hong Kong.

The enormous rise in the use of the internet will spawn a whole new range of companies. The big rise in Telstra’s mobile phone customer base is the best news the company has had for a long time, because mobile phones are going to be used for an incredible new array of applications. If Telstra is smart enough, it will really capitalise on that customer base.

During the week I was yarning with a big investor in upmarket shopping centres who had a different point of view to me. The investor believes that the new growth area of Australian shopping is the development of American retail outlets, where the company is just as happy for the customer to buy directly on the net as buy from the store. The store is the display part of a total global network and is not the main source of profit.

Retail has been our most protected industry but that is now changing. That means our existing non-food retailers such as Myer and David Jones will have to develop models that can cope with these developments. But the upmarket retail centres say that they don’t need Myer and David Jones as much as they did before, particularly as the overseas retailers gather momentum.

Nevertheless, as I pointed out last week (see Time to rethink commercial property), this is a dangerous environment for retail properties outside supermarkets. I think our mining industry will have a tough time in the middle of this decade as supply catches up with the shortfall in demand. Specialty manufacturers will survive and prosper, provided they are making products where scale is not the most important factor.

Most will have to be able to export. But very often manufacturing will take place elsewhere and Australia will be a centre of design. We have to hope that out of the Canberra chaos will come a leader who is smart enough to know what changes are needed and to sift through conflicting advice and then be strong enough to take action.

I think Kevin Rudd has ensured that Tony Abbott is going to get the chance to be that person. But the skills of being prime minister are very different from being opposition leader. When he does come to power, however, the sharemarket will rise.