Who doesn’t love a bargain? A savvy searcher knows that there’s more than one type of opportunity. What does this mean for our portfolios? More in this week’s video.
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growth stocks
Getting Back to Basics
The pandemic forced many companies to shake things up. But perhaps because of these challenges, some of the most basic, “boring” companies on our radar have been making some of the most interesting changes!
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Which Came First? The Bargain or the Growth Stock?
It’s a classic thought experiment. “Which came first: the chicken or the egg?”
Clearly, the egg came first; that’s where chickens come from! But, wait. Who laid the egg?…
There’s a similar conundrum found in our work. In business and investing, we like to look for strong companies—ones that spend wisely, save well, and try to build an enterprise that can remain durable across changes in the economy. Often, these companies must have a strong balance sheet (i.e., more cash than debt) in order to grow to the size of an industry leader.
Clients, in the early stages of the pandemic, we invested in some companies leading their industries. Our original investing thesis was that even if the virus took its toll and a worst-case scenario occurred, people would still need the staples.
People would still need groceries.
People would still buy meat.
People would still order prescriptions.
While we were sure these everyday items would be impacted by pandemic life, we also believed they would likely survive—in one form or another.
Now many of these market leaders have been able to use the resources of a market leader to continue to evolve and transform organically. They may seem like “boring” companies on the surface, but in times of challenge, they are acting like growth stocks: many have been the first-movers among their peers, making plans that could shift their whole industries.
And believe it or not, we bought some of these companies as bargains. So which came first?
It’s fun being us. Clients, we are always looking for opportunities. Are you seeing anything that we should be watching? Let us know. And when you want to know more about what this all means for your portfolio, call or write.
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Play the audio version of this post below:
Which Came First? The Bargain or the Growth Stock? – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
The Price Is Right! Come on Down… or Up!
A bargain is a bargain, right? We seek those opportunities that may be undervalued by others right now. But there are other types of bargains lurking, too: those opportunities that get the label of overvalued right now… but may actually have years of growth ahead of them!
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The Best Way to Get to Know a Recession
Tolstoy’s great novel Anna Karenina begins, “All happy families are alike; each unhappy family is unhappy in its own way.”
This seems like stretching a point. In my life, I’ve had the good fortune to know many happy families, all quite different. But the quote does capture the uniquely lonely feeling that can come with misery.
The market, we believe, operates in much the same way. Bull markets can cover up a lot of performance differences, and although no two bull markets are quite alike, most investors are generally going to be happy regardless.
But each and every recession hurts in a unique way. We just have to wait.
The market behaved very differently in the tech wreck of 2000–2002 than it did in the Great Recession seven years later. And what we see now is different than either of those!
In a conventional recession, heavily cyclical companies like manufacturers get hammered hard. But cyclical companies generally understand the boom-and-bust cycle and plan for it with their savings.
Consumer goods companies on the other hand might take it for granted that people will keep buying food and clothing and other necessities, so they generally do not keep as much cash on hand. The short, sharp shock we experienced earlier in the year took out a lot of retailers that might have weathered a longer, shallower recession.
Homebuilders are normally one of the biggest casualties in a recession, but they are doing booming business now. So are the companies that make the materials they work with. Many big tech stocks, normally volatile and erratic performers, have been scorching the markets.
This is a stark contrast to the 2007 recession, when the housing market cratered and took out a lot of homebuilders, or the 2000 recession, when growth tech stocks got demolished.
In all likelihood, those previous recessions helped set the stage for these sectors’ current outperformance. Going into this downturn “everyone knew” that homebuilders were going to get wrecked because it happened last time.
Perhaps in five or 10 years there will be big opportunities for investing in restaurants or cruise lines as the next recession prompts investors to flee the businesses that got hit hardest in this one. No guarantees.
Every downturn is different, and we have no way of knowing what the future will hold. All we can do is stick to our principles: avoid the stampede and seek out bargains. Sectors that get trashed in one recession may be found in the bargain bin before a different recession. This is why we study and keep our eyes open.
Clients, if you have any questions, please call or email us.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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