3 Pandemic Investment Conclusions That Might Not Be 100% Accurate
These are challenging times. And there is no doubt this virus pandemic will continue to impact the economy. Change is inevitable; the so called “new normal”.
As all of us continue to struggle with the virus outbreak, there are some that are looking to make conclusions based on current difficult circumstances. It is right to try to decipher what permanent changes will occur in the economy.
The understandable fears about the future are shaping investment thinking. I believe it’s important to ponder these shifts in life and how they impact investment strategy. But it is my view that some of these conclusions are based on current feelings rather than objectively looking at what long-term reality might look like.
3 Themes to Examine
At Destination Wealth Management we have identified 3 current popular conclusions that some are making regarding the future of the economy that we believe to be overstatements. There is an element of truth in each of these conclusions. The question is whether or not the shift will be a dramatic as emotions suggest.
1. People will migrate completely online and avoid brick-and-mortar locations.
It is absolutely true that a greater percentage of shopping will occur online because of COVID-19. We also believe that you will continue to see brick and mortar retailers struggle. But companies that figure out how to provide a brick and mortar shopping experience that adds value will still thrive.
Webvan1 (an internet startup company during dot-com crisis focused on delivering groceries) is a prime example of the false belief that shoppers will never leave their computers. The fear was all grocery stores would go out of business and people would simply buy food online. Turns out this was not the case as people still wanted the opportunity to socialize, touch and feel products, and emerge from their home. This will be the case in retail and the key is to identify the retailers that will provide a value proposition as well as a positive shopping experience.
2. The travel economy is permanently damaged.
Today, with the uncertainty of the virus, the travel economy is obviously significantly impacted. We expect this to continue until there is a vaccine developed hopefully next year. But do not underestimate the desire of people to travel and find diversion in their lives.
Look at the reopening of Las Vegas as an example of pent up demand to travel. Watch theme parks as lines emerge to enter. Travel websites that provide gateways for people to take trips will bounce back. Travel is impacted right now but this will not be permanent.
3. Restaurants popularity will be forever altered.
It’s fair to say that restaurants will be different for a significant period of time. But restaurants are the heart of most communities where people gather and socialize, and this will not change. Restaurants will need to adapt for the next year and sadly many will go out of business. But surviving restaurants will do great business. Once demand outpaces supply, new restaurants will emerge, or closed businesses will reopen.
Many look forward to having a nice relaxed meal where one need not be worrying about the virus. That is the feeling for many Americans and that will be the case once the virus is tamed.
My point in outlining these 3 trends is to highlight how often investors think about timeframe on a short-term basis. While it seems like forever since the virus pandemic has been with us, it’s entirely possible that next year there will be a reduction in risk.
If one looks at conditions with a 12-month perspective, it might be tempting to draw conclusions that are not accurate. Just as we all adapted to new restrictions at airports after our heartbreaking 9/11 experience, we will again adapt to whatever the new normal might look like and move forward as a society.
Time horizon matters when making investment conclusions. It’s important to not be dogmatic as one make assessments about the next 5 to 10 years based on today’s current pandemic.
A Longer-Term Perspective
At DWM we think through investment strategy on a thematic basis and make judgments accordingly. Risk mitigation matters to us as much as return opportunity and as we make investments in portfolios. We analyze what the economy will likely look like not just in the 12 months ahead of us, but over the next 5 to 10 years. We believe that’s the appropriate perspective when investing for long-term planning goals.