After the COVID-19 outbreak started, many people started asking “what will change in the future”. Instead, it’s usually safer to ask “what isn’t going to change”. That answer results in clear investment opportunities with limited risk. We say limited as no investment is risk free, even a currency in your country. When we think about the future, most want grand explanations full of dramatic shifts. The reality is that the future will see an acceleration of technology and an individual should prepare for the new environment.
Technology Will “Eat The World”: If you’ve been following the blog over the last 8 years or so, you’ve seen a slow and steady shift to technology instead of finance. This isn’t because we’re negative. It is because it is happening. If computer systems can beat the #1 player in Go (or any game at this point) and can drive cars in the future, it is certainly going to be able to do basic accounting/math problems. The artificial intelligence can quickly calculate the impact of a merger on financials without an excel jockey in the middle.
Technology will continue to make our lives easier… If true… this means that we should be over-exposed to technology from an investment perspective. Take the S&P 500 and look at the mix of the various industries, oil & gas, real estate, financial services etc. Simply take this mix and buy more of the technology sector. Sure. You may lose money in a particular year, month or week. And. Over the next 10-years you’ll eventually see technology become a more and more important part of the index.
Knowing that technology will continue to push forward at rapid rates (self-driving cars, curing diseases with AI, drones and new automated delivery devices) we can conclude that working in an industry that continues to help technology is a positive as well. For that we have to go “up stream” and move to the supplier side.
Moving Tech Upstream: We went from everyone wanting to create a blog to everyone wanting to create a brand to everyone wanting to have their own e-commerce store. The good news is that this trend will continue. You should then think about businesses that can move upstream. In simple words, you want to sell all those picks and shovels to the people creating brands and companies.
Some simple examples include: servers, manufacturing and logistics. If we can agree that people want to create their own “online brand” and push to internet based businesses, it means you want to be the “helper” for all of these people. You don’t care who wins in this case as some of them will fail and some of them will succeed. You’re just there to help them run their business by giving them servers, a manufacturing facility or offering a warehouse for storage.
Yes this is our next point of advice for anyone who is young. If you already have decent cash flows, you want to try and move upstream. This is less risky as you’re simply a picks and shovels play on the future of commerce. You don’t need to “win’ which is the hardest part of building a brand. Instead, think about the billions of people who will attempt to create commerce businesses online and ask yourself “how do i help them”. This gives you a stable return with less risk.
Wealth Inequality: With the current set up, wealth inequality is going to continue to rise. Currently, money printing is continuing at a rate we’ve never seen in human history. Billion and Billions and Billions of dollars… printed out of thin air. This money is not going directly to the people who are unemployed it is going into the “economic system” which is just a simple way of saying asset prices. The rich are spending *less* because they cannot travel, cannot spend on fancy trinkets and cannot go to expensive restaurants as frequently as they did in 2019. So all of this money has to go somewhere and it’s going into assets (stocks, real estate, gold, crypto etc.).
In addition, the companies that were forced to shut down (hair salons, restaurants, bars etc.) are taking out 0% interest loans due to specialized programs. The problem is that debt needs to be paid at some point. So if you are a small business owner, you’re probably better off shutting it down entirely and waiting until the pandemic is over before trying again. If you were already levered up prior to this, then you’re in for a rough decade. Having a partially opened business at “25%” capacity when your operating margins were already low at 10% is not going to help you as you won’t be able to cover fixed costs. If we can agree that inequality increased recently, it means scarce assets will continue to rise in value (beach houses etc).
Healthcare Investment: Outside of technology with COVID-19 or without COVID-19, more and more money will likely pour into the healthcare industry. After something this drastic, countries and companies will look into pandemic planning. They will also invest in the same healthcare trends that were here prior to COVID-19 (aging population as baby boomers are largely retired at this point).
Unless you’re an expert in the field, it’s probably best to avoid betting on specific stocks. You can simply look at the industry and make sure you are exposed to some of those trends in healthcare, bio-technology etc. Just buy the basket. If you have extra money sitting on the sidelines… you should be sprinting (not running) to put those dollars to work in a real asset if we’re going to continue to print money (devaluing fiat currencies).
Some Specific Changes (Tech and Healthcare): It’s highly unlikely that zero emission policies go the way of the dinosaur. The future is electric and we know that electrification of vehicles (cars, trucks etc) will continue. In addition, we know that alternative forms of energy will ramp up (reliance on oil is going to go down). If people believe otherwise we’d love to hear it. From our own research, it seems unlikely that digging oil out of the ground is energy efficient long-term.
Electrification ideas are actually quite easy to find. Wait for companies that have real units/volumes. Tesla has been a good example, battery companies will come around and solar panels will eventually work. Cost declines are real when it comes to these industries so you don’t need to invest in questionable companies with no real volumes (just look at Nikola for an example of why it isn’t worth it to invest in companies without units).
Another good example is “going up stream again”… but for technology. Instead of looking at the past, ask “what type of products are needed for electric vehicles?”. This changes the mix of commodities. So you will likely see an increase in commodity prices for minerals used in electric vehicles, solar panels etc.
Mental health is one area that needs to be addressed. This blog is probably one of the least empathetic areas on the internet. That said, anyone who has seen a wide range of economic spectrums knows that people (in general) want/need to feel appreciated/valuable. The worst thing is to feel “useless” and “good at nothing”.
With artificial intelligence ramping up (for better or worse we’re using it and seeing it), it is clear that many jobs will be automated. There is no way that the government and tech companies will create a seamless and perfect transition into the new normal. Structural unemployment increases and we need a way to both offer new education systems and mental health care systems. You do not want to see a society where everyone has nothing to lose.
If riots are bad now, the prior sentence would be 10x worse (or more). Hopefully the tone shines through, we’re not kidding when we say it’s a big issue. That said, the chances that the average person will agree is low, so you’re better off owning the bio-tech/healthcare industry in general. It’s hard for the average person to understand exponential change in job losses.
On a more likely note, healthcare spending will shift into disease research (due to COVID), life extension (continued from past) and new equipment to detect diseases. Those three have been going on prior to the pandemic (COVID accelerates one of them) but even if we solve COVID tomorrow, the main three will remain as “big problems” for society to solve.
The last one related to both technology and health is actually our water supply. At this point, we do have the technology to remove salt from ocean water. The problem is that the cost is too high (equipment needed). In the future, we’ll likely develop new solutions to clean/purify water that were unavailable in the past. If you want to see how serious water issues can be, look at Flint, Michigan in the United States. That is a city in a first world country. If you extend that problem globally it becomes a serious issue that needs to be resolved.
Higher Amounts of Personal Debt: Prior to the pandemic, individuals were still loading up tons of debt to go and get educations that may or may not actually benefit their long-term future. This led to a large debt burden for huge chunks of society. If you were a millennial, you watched 9/11 followed by a great recession followed by this pandemic. Meanwhile, you were told to go to college and that college did not guarantee any increase in income (or any income at all)… pretty sweet deal!
That aside, many companies took the interest free loans to stay afloat so the amount of debt is simply going up. This is going to lead to a very long drawn out recovery from an economic view (not talking about stocks in this case). In short, doesn’t make sense to own any bonds… especially those safe ones like student loans.
