The old saying, “Can’t see the forest for the trees,” refers to the difficulty we humans have in maintaining perspective, of keeping the larger context in mind. Our current challenges bring us reminders of this.
Recently we were discussing the prospects for investing in a food processing company. Market disruptions have knocked the cost of $1 of annual earning power down to $10 – an earnings yield of 10%. (Another way to say it: a price-earnings ratio of 10.) If one can purchase durable earning power in an enduring industry at valuations like that, the holding might be owned a very long time.
(No guarantees – there are a lot of assumptions in that last paragraph.)
A colleague asked us whether we were concerned about the impact of processing plant shutdowns. After agreeing that any shutdowns would likely be limited to a matter of weeks, this seemed to be one of those problems of perspective.
For none of the past few decades have the plants been shut down for a virus. Apart from the next few weeks, it seems unlikely that virus-related shutdowns will be much of a factor in the decades ahead.
The forest is that we humans will still need to eat in the future, and there is probably money to be made by meeting that need. The trees are the virus and the shutdowns and the disruptions. One of our key roles is working to see the big picture and striving to act accordingly. We need to be able to see the forest in spite of the trees.
Interestingly, the challenge of maintaining perspective may play a role in creating bargains. Investors who get too wrapped up in transitory effects may push prices to levels that don’t reflect the long term value. When current conditions fade, as they will, that value may become apparent. Again, no guarantees.
Clients, if you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.