Updated: Oct 8, 2021
"Sometimes it's the bad things that happen to us that become the catalyst for the good things to happen to us. Life forces you into the areas where it wants you to reflect, learn, take action, and grow." - Ian Cassel, Microcap investor.
The human, economic, and financial impact of the COVID-19 crisis won't be known for some time. I'm convinced we will look back at certain truths today that will provide the next generation with a "what were they thinking?" moment. Much like my oldest daughter's reaction when I tell her I didn't have my first cellphone until my junior year in college (even then it was a boxy Nokia with limited capabilities).
After weeks of working from home in sweatpants, begrudgingly watching Bloomberg TV, and navigating the cesspool of Twitter, I let my mind drift to how business, life, and the way humans interact could change. It was a refreshing exercise, as my mind pivoted away from the darkest scenarios to the realization life will return to normal. How might this experience pave the way for future investing opportunities as humans change their behavior?
*Pure clients will receive a future opportunities list next week. We examine attractive opportunities, timing, position sizing, etc.
This is my cluttered version of the post-pandemic world. Some are posed as questions, others as statements. The order and flow is pure randomness. You will have your own list and might disagree with the below conclusions (and that's okay). Furthermore, there will be many unintended consequences that nobody can see.
I find it troubling that many industries (airlines, cruise ships, casinos, aerospace) are on the brink of collapse after a month of business disruption. The C-suite needs to reexamine how they allocate capital. Borrowing money to pay dividends and buyback shares at all-time market highs was a disaster. Hopefully, this will encourage a more prudent approach to managing debt, returning capital to shareholders, and shoring up corporate balance sheets. The era of maximizing shareholder value, regardless of the human or community cost, is over.
At the household level, we've experienced two financial crises within 12 years. Does this shape the risk appetite of a generation? Do Americans begin to shun debt and live within their means?
Not that traditional brick and mortar needed any help to accelerate their demise, but the "shelter in place" orders is a devastating blow to traditional storefronts.
Souce: Bespoke Investment Group
The above graph shows "clicks" (red line) and "bricks" (blue line). Could this further push brick and mortar retail into the oblivion?
In my opinion, commercial real estate will never be the same. Not only are shopping malls, strip malls, and restaurants closing, but millions of Americans and the companies that employ them could come to the conclusion that traditional office/storefront space is unnecessary. In the era of 24/7 connectivity, WiFi, laptops, smartphones, why bloat your overhead with expensive lease commitments? The end of the antiquated 9 to 5 workday may eventually disappear along with soul-sucking gridlock traffic, lunch rush, and productivity-killing meetings.
Speaking of restaurants, seated diners saw activity crater over the past 30 days. Could this lead to an industry reinvention focused on take-out, UberEats/GrubHub, drive-thru, and other flexible models?
Source: Bespoke Investment Group
The above graphic shows OpenTable Restaurant traffic from 2/18 to 3/17. National traffic for seated diners fell -56% over the 30 day period!
I'm not a cryptocurrency enthusiast, but I'm more convinced than ever Bitcoin will become a staple of a mainstream investment portfolio. As governments around the world get more fiscally irresponsible and conduct monetary policy experiments, the more attractive a decentralized currency, i.e. Bitcoin, Gold, become.
In our darkest hour, it's easy to forget great companies are born in times of chaos. Here's a handful of technology unicorns founded during the Great Recession:
We wonder what the next wave of innovation will bring? We wouldn't bet against the entrepreneurial spirit of the American people. Disruption often breeds opportunity.
We sent the below stock list to Pure clients on Wednesday. Could these companies thrive in a COVID economy? *This is not a recommended buy list, rather a thought exercise as human behavior evolves.
Source: Bespoke Investment Group
We wonder if supply chains, especially vital drugs, medical & healthcare equipment, will return to domestic shores. The shift might be more expensive, but the appetite for leveraging globalization to save a buck might have run its course.
Mandatory health screens before getting on an airplane, train, or public transport doesn't seem far fetched. Public transportation/infrastructure investment was a top priority for many urban cities. How does that hold up in a work-from-home and social-distancing world?
Will post-COVID fear change the the way we socially interact? Will movie theaters survive the "Netflix and chill" movement? Will the trend toward urban living reverse, making suburbs more attractive? How will personal hygiene and social norms change (fist bump replacing the handshake)?
Looking at the financial services industry, I'm more confident than ever Pure Portfolios' model fills a powerful niche. We have lower fees than most human advisors, but we provide the professional expertise and personal touch a robo-advisor or low cost provider cannot. Our investment in cloud technology allows us to implement portfolio changes quickly, communicate and interact with clients from anywhere, and run our business uninterrupted. Furthermore, clients know we are in this battle with them as our fees are linked to their investment outcome (qualified investors only).
I've been told for years by financial planners and do-it-yourself investors that the investing portion of the financial plan was solved. Just buy one or two of the cheapest index funds you can find and print money. Unsustainable low volatility and outsized returns created a generation of complacent investors, unappreciative of the risks lurking in the shadows. Portfolio construction, risk management, and a process for making investment decisions, in good times and in bad, always matter.
What does the post-pandemic world look like to you?