Merry New Year!





January 13, 2020








Welcome to the new Roaring Twenties! As we close the previous decade and embark upon a the next one, it is useful to reflect on the major theme of the past to guide us into the future. We started the previous decade coming out of a recession sparked by the worst financial crisis since the great depression. This trauma set the stage of the US economy for the 10 years that followed.


It is often said bull markets climb a wall of worry. This adage perfectly describes the longest bull market in US history, which started in March of 2009. According to Howard Silverblatt, senior index analyst at the S&P Dow Jones Indices, the S&P 500 has generated a total return of 256%, or 13.5% annually, since the beginning of 2010. Despite this historic performance many feared it was only a matter of time before things went south again.


In this context it’s useful to reflect on the Original Roaring Twenties. On March 4, 1933, President Franklin D. Roosevelt, in his first address to the nation, proclaimed “the only thing we have to fear is fear itself – the nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” Roosevelt was addressing the fear American had after the only other financial crisis more significant than the one we experienced in 2008.


As Roosevelt sought to restore confidence in the banking system, he noted, ”Some of our bankers had shown themselves either incompetent or dishonest in their handling of the other people’s funds. They had used the money entrusted to them in speculations and unwise loans. This was, of course not true in the vast majority of our banks, but it is true in enough of them to shock the people of the united states for a time into a sense of insecurity and to put them into a frame of mind where they did not differentiate, but seemed to assume the acts of a comparative few had tainted them all.”


Similarly, over the last decade, many Americans avoided investments, not just in the stock market, but in business in general. Major corporations delayed and deferred capital investments, while and banks took a very conservative posture, holding significant cash on their balance sheets. Those individuals brave enough to invest reaped tremendous rewards.


So if you missed out on the biggest bull market in history, should you all go out and buy stock and make big investments? Maybe, but remember, all good things come to an end. The longest bull market can’t go on forever, and you could be buying at the top of the market. The real lesson is fear not! There are always opportunities out there.


The following are three areas worth considering:


Food


One of life’s basis necessities, food is a sector which present a growth opportunity going forward. Like most other areas of modern society, Consumer Goods are going through a period of disruption. As America’s largest generation, millennials, mature and increase their consumption, old companies are finding millennials have different tastes. They are concerned about health and about how their food arrives to dinner table. In additional to all this, consumer staples like Food & Beverage are excellent investments during a market downturn, so if the market does turn, those investment tend to hold up. Consider companies offering meat and dairy alternatives. As people rethink meat and dairy for health, humane and sustainable reasons, businesses who can capitalize in this cultural shift will benefit.


Technology


We’ve crossed the Rubicon and there’s no go going back. Technology has become an integral part of our lives, and that’s not changing. Automation, The Internet of Things, and Quantum Computing will continue to change the way we do everything. Those creatives among us should create the technologies of tomorrow. Us mere mortals should look to invest in areas where technology has yet to touch our lives. Fear not, it will. Think about where and look for companies poised to breakthrough. Think about advances in vehicle technology. It’s quite likely by the end of this decade self-driving cars will be the industry standard. At the very least, cars will be smarter, companies who make smart components will do well.


Health Care


Regardless of your feelings about the US healthcare system, it’s ripe for change and opportunity. America spends more on health care than any other country in the world, but we do not get the best outcomes. Such a result is not sustainable in a country which prides itself on productivity. As we mentioned before areas well positioned for disruption should be carefully examined for opportunities. Consider the inefficiencies of the health care system and identify companies who could take advantage of a clearly broken system. One of the challenges in healthcare is inefficiency. In the US, there are two administrative staffers, to handle all the paperwork, for every three doctors. This is because the hundreds of insurance plans charge different prices for the same procedures. The companies who solve this mystery will change the world.


2020’s


America faces many challenges in the coming decade, but as always there will be opportunities. So remember, don’t be led by fear, do your research, and you can identify great prospects in Bull Markets and in Bear Markets.