Last night I was lucky enough to enjoy some escapism and remember some sage advice from George Orwell in Down and Out in Paris and London “The stars are a free show; it don’t cost anything to use your eyes”. Last night and for the next few nights we are lucky enough to be gifted a new moon during the Lyrid meteor shower, so called after the constellation where in the main this shooting star shower originates from.
It was an hour of peace, looking up, listening to the sound of silence, few cars, no voices. A neighbours pond’s waterfall was the only real sound to keep me company. It also got me thinking about how fleeting human kind has been in the Universe. If you take a moment to consider that the moment of creation was approximately 13.9 billion years ago; our earth was formed 4.5 billion years ago, yet we, Homo Sapiens have only roamed the planet for 200,000 years. Then I think that perhaps shooting stars are the ideal metaphor for us, particularly at this time. In the words of my mother “this time will pass”, I question what will the world look like on the other side?
Covid-19
Well firstly, if I can avoid the bigger human picture (for now), I think we as investors need to consider what type of recession we are in. Most recessions are shaped like a few letters in the alphabet, you have the classic “V” a sharp down followed by sharp up. The “W” this picture was first seen in the “Great Depression” of the 1930s, this spawned the terrible phrase “the dead cat bounce” given to mean a small, brief recovery before stocks fall back down again. Or the “U” a down, a flattish longer period then a recovery after time.
So what’s the answer?
Well at present no one knows, the great thing about economies and history in general is that we can all be experts with hindsight. So what is my view, and I do use that word, my, not Julian’s, not the teams but me, please do not tar them with my brush.
My view is that this recession when looked on back in time will be a “W”. Never before, have we hit stop on national and global markets. Never before, have we shed so many jobs in such a short space of time. Never before, have governments unveiled so many fiscal measures and pumped such significant sums of cash to try and keep economies and society afloat.
Sadly, now after four weeks of lockdown we are starting to see some of the bigger and smaller casualties of the crisis, retailers are starting to go into administration or file for protection; Sir Phillip Green’s Arcadia empire has announced it will not be renewing 100 commercial leases; Virgin Atlantic has asked the government for a loan and Virgin Australia has already gone into administration.
We witnessed markets drop very fast, then we saw a turbulent but significant recovery, but now I think we may see a slower and longer slide backwards as investors react and adjust to a world with record unemployment, high levels of government borrowing, social unrest and protest (some of it encouraged by world leaders) and changed patterns of economic demand.
So where does this leave us as investors?
Well we are in turbulent times and whilst I strongly believe we will recover I think the new world will be very different.
I think the travel and tourism industries will suffer significantly. I am not sure if travel will ever be the same again. The retail sector, already in trouble with high rents, high rates and online shopping will shed further jobs and the larger less agile businesses will collapse. The hospitality trade will suffer the longest shut down of all and will reopen into a world where tables may not be as close together, meaning either prices need to rise or margins need to fall. The property sector, so long a popular place to invest will suffer significantly with less demand for offices and shops and home working rising. At present the vast majority of property funds have closed to new business and redemptions, why, for the simple reason they do not know what the value of their investments are in this market place.
So again, where does this leave us as investors?
It leaves us with a need for diversity more than ever, we need diverse investments, we need to spread our capital across geographies, industries, sectors.
We need to consider our top ten holdings across our portfolios:
- Are my investments too concentrated? We need to focus on risk.
- Do I need to be chasing returns?
- How long am I invested for and what is a reasonable expectation?
Thinking back to the dark sky of last night, if I can risk a human side, it is good to remember that some of the finer things in life are free and if you ever have some time on a dark night can I recommend that you take a moment to look up and enjoy the majesty of the stars.
(Incidentally if you want to see some shooting stars, the next few nights should give us all a good opportunity – good luck and I hope to talk with you soon)
We wish the best of health to you and your families.
Kind Regards
Benjamin Sear
Managing Director
Martin-Redman Partners
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