Our recent list of “4 things I can’t believe” included some surprising (but largely negative) insights.  Many people encouraged us to produce a list of startling but positive observations about our world looking forward.  So here we go with our 4 positive surprises:

1 – Technology may leapfrog ahead:  Some politicians offshore say their country is on a ‘war footing’, meaning they’re taking extraordinary steps to mobilise industry and secure essential services.  A more insightful similarity with a war footing is that in the near future some technologies may leap ahead by 3-5 years. From 1939-1945 necessity super-charged advances in aviation (think jet engines, pressurised aircraft and radar), synthetics (rubber), and healthcare (antibiotics, surgical techniques and blood transfusions).  Similarly, over the next few years we may see leaps in innovation – in particular, artificial intelligence and drug development technology could be brought forward by years.

2 – Entire industries will flourish:  Everyone knows industries hard-hit industries – airlines, airports, hotel chains, tourist operators – the tricky part is to identify industries that will win. Here are a few:  Healthcare – diagnostics, data analytics, improving drug trials, anything reducing health services cost or increasing accessibility (telemedicine, personal monitoring through wearables).  Supply chain management – logistics software, automation etc.  Entertainment – online entertainment and streaming platforms for both personal and business use.  Some industries will be big winners and some will be big losers – be selective with how you invest.

3 – Exciting new companies (that probably don’t exist yet) will generate great long-term returns:  This is counter-intuitive, but great companies will be founded now – and they may not be in the growth areas we identify in #2 above.  Half of Fortune 500 companies were founded in a recession or bear market – including Microsoft, GE and IBM.  Similarly, from the incineration of dot-com share prices in 2000, we also saw unbelievably innovative and high performing companies rise – like Facebook and Trademe.  Disruption means opportunity and we’ll see big winners who can innovate, excel and grow shareholder wealth over the next 1-5 years. Many of these companies will not even exist today.

4 – Tech is (still) where it’s at:  The average stock in the US is down 12% for the last 3 months.  Emerging markets are down 18% and NZ is down 9%.  Yet remarkably the NASDAQ index of technology stocks is up for the year! It’s driven by big tech shares and also smaller businesses like Beyond Meat (plant-based meat substitute products) up an astonishing 75% year to date.  What is this telling us about the new Covid-19 world?

a) Technology is increasingly critical in the world around us, and increasingly critical in your investment portfolio

b) Tech stocks are often better positioned with strong balance sheets or access to capital – think of the big tech companies like Alphabet (Google), Facebook, Microsoft, Tesla, Amazon and Apple (but also hundreds of healthcare and biotechnology companies)

c) Many investors believe tech companies are more ‘speculative’ or ‘risky’ – but in truth they can often be more defensive and have characteristics of monopolies.

In case you missed it a week ago, here’s our 4 (very negative) things we can’t believe are happening in our world:

1 – Online vs real world: Last week the market capitalisation of Netflix overtook Disney’s market cap. It repeats the light bulb moment 20 years ago when Amazon’s market cap (online books) overtook Barnes & Noble (physical book shops).

2 – Negative numbers: The US oil contract price went negative. The official cash rate in NZ is almost certainly going negative. This isn’t supposed to happen, but sadly we’re going to get used to seeing more negative numbers.

3 – A decade to create, a month to wash away: All jobs created in the US since the GFC evaporated in a month (22 million jobs gone). 3 months ago that was beyond comprehension, now it’s reality.

4 – Concentration in the few: The 5 largest S&P500 companies now make up about 20% of the index. An astonishing level of concentration – near double 5 years ago. To be fair, not as concentrated as here in NZ where our 2 largest make up about 30% of the NZX50 index. How did that happen?

We are hoping that from both social and financial perspectives the positives will outweigh the negatives.  From the financial side, what this tells us is to be active and agile – as well as ethical – with your investment strategy.

John Berry

CareSaver

Photo by Mitchell Griest on Unsplash


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