What on earth is going on with the stock market?
Markets are pretty much back at the point they were at before the virus-induced slump took hold. As I write, a few days of nervous jitters had sent share prices back down off the top, but nothing that would indicate the scale of the recession the global economy is surely facing.
As all apparently experienced investors will happily tell you — usually in a deep and somewhat patronising tone — “This is what stock markets do. They will go up and down and…” What a brilliant insight! This is usually followed by how they saw it all before in the dot.com crash, the financial crisis or even Black Monday.
Apart from stroking their own egos, such conversations teach us very little except how tedious some old investors can be. Actually, the successful ones are often the ones who keep a low profile and keep quiet about what they have achieved steadily over the years. Those are the ones who live by the mantra of “don’t lose it, but just grow it”. This is the difference between the nervous punter and more confident accumulator.
So where are we today? Well, first ignore all of those who say we have seen this all before — they haven’t, at least not in their lifetime. We are now dealing with a very unpleasant concoction of poisonous issues which economies and markets are going to have to manage their way through, and it will take time. A V-shaped recovery? More like a two-fingered gesture.
At the top of this obnoxious pile stands the man whose name should be given to this current market. The Trump Market — unnaturally coiffed, too high and unsustainable in fashion, and liable to be blown away at any moment. Would you invest in that? Well, probably only in the company that makes the hairspray.
So what can investors do? In our turbulent and unreliable world, I will highlight some key themes that I think are going to become vital necessities in your future portfolio.
In times of crisis, investors have traditionally turned to defensive stocks such as utilities, reckoning that we will still require our basic needs to be fulfilled. However, the industry is changing rapidly. “Green” two years ago was seen as a conscience easing add-on for your investments. Now renewable energy is the future and any power company that does not wear its non-carbon credentials proudly will be losing business.
The same applies to the water industry (which always seems to leave out the key part of its role, which is sewage). Whether through shortages or quality variations, we will always need water — although I have to say, some I have met recently could do with using it more frequently (preferably aided by some soap). Infrastructure funds are one way of gaining exposure.
Then we have food. Lockdown has changed our shopping habits, but internet delivery is not the only trend — the pandemic has moved us all towards a more local focus. As well as Amazon and the food retailers, be alive to the opportunity of investing in local food initiatives which will no doubt be looking for backers as entrepreneurs seize the opportunity (which could be financed via crowdfunding, impact investing and potentially EIS investments).
Considering our ageing population, investments in healthcare and pharmaceutical companies must also form part of our portfolio. I come from the generation where drugs were optional and even a source of (illegal) entertainment. Now, in my case, they are becoming compulsory although lacking in any entertainment value. All I do know is that my entire generation seems to require pill boxes to keep their medication close to them.
And then there’s communications. Again, the astonishing change in this area means that the concept of a phone company is positively antique. Back in January, did any of you know what Zoom was? For those with children, it has been vital under lockdown to have fast and reliable “comms” for all, if only to maintain domestic harmony. The integrated communications companies have now conflated the television, the computer and phone into an essential service for us all.
Finally, our domestic leisure industry. When we can travel again, much of that will take place within our four nations (I, for one, will be not be seen in an airport queue which is likely to be longer than the runway). Yes, things will be different as we learn to live with the virus. But people will want to take breaks — and hopefully this will breathe some life back into our domestic tourism sector that has been so oppressed over the past few months. I can think of at least one person with an Airbnb rental who will be cheering.
Together, these themes will inform my portfolio for dangerous and unreliable times by focusing simply on the “bare necessities” — which gives me the perfect name for such a construction. This must be “Baloo’s portfolio” as it contains all of the bare necessities.
For him, these also included having a good scratch, which given the current length of my hair (due to lockdown coif curtailment) is indeed something I would share. Just go easy on the hairspray.
Justin Urquhart-Stewart is the co-founder of Seven Investment Management and Regionally, an investment platform for SMEs based outside of London. The views expressed are personal. Twitter: @UStewart