related industries

Portfolio Themes: Spring 2022 Updates

graphic shows blooming white flowers and text reading "portfolio themes: spring 2022 updates"

In our portfolio management, we try to pick and choose our spots. We’re investing for the long term, after all. We are not indexers; we invest in individual companies for their unique characteristics and the potential behind their story. We avoid knee-jerk reactions to any day-to-day news.  

Sometimes, though, the daily news covers an issue that’s big enough to linger. Much of the news cycle lately has been dedicated to the war in Ukraine. The implications for the global economy are profound and have a direct impact on our work. 

The war may be accelerating trends that were already there, but now they are more pressing. 

OIL, ENERGY, FOOD, & BEYOND 

Maybe you’ve noticed at the gas station, but one of the big impacts is the price of oil. In the short term, we foresee great profits for oil companies, but skyrocketing oil prices and energy uncertainty have also renewed interest in the next energy revolution. Solar power and electric vehicles have been on their way for a long time, but the world needs them more urgently than ever before. 

These issues are interconnected with trends in agriculture. Ukraine and Russia are not only both food producers: they’re even bigger producers of fertilizers, supplies, and equipment. Agricultural commodities were already on the rise before war broke out, so food producers around the world were already investing heavily in new planting. The journey ahead will be interesting for even “boring” food production and distribution companies, but greater profits may be rapidly approaching. 

THE IMPACT OF INTEREST RATES 

Those rising prices have energized more interest in durable commodities such as copper and gold, which we’ve been following in our shop for a long time

But the double whammy of rising interest rates and rising materials costs has a cooling effect on the housing industry, which we have been easing out of by steps. The shortage in the nation’s housing supply persists—and probably will for a spell. For now, homebuilders are a longer-term, lower-priority investment for us. 

WHAT THE PANDEMIC MEANS FOR TECH 

In times of strife, investors tend to seek comfort and safety, so more volatile sectors such as technology are starting to come back down to earth. We believe this may create buying opportunities in software and internet companies, which are less vulnerable to high interest rates and commodity prices. (They are often light on debt and low on material costs.) 

Even as COVID-19 continues across the globe, some areas of life have become more manageable. The air is clearing a little for airlines and travel stocks, although we are more interested in another area of potential: biotech and pharmaceutical companies. While pharmacy stocks may be easing as the pandemic rally subsides, we are looking forward to new breakthroughs in the years ahead. The advances made in the pandemic, we believe, will prove to offer even more applications elsewhere in the future. 

TAKING STOCK 

The world is a complex place. As always, our thinking evolves on a weekly basis through our research process. Our vision, however, stays trained on these longer-term trends—and what they mean for our longer-term plans and planning. 

Clients, want to know what this means for your portfolio? Please email us or call. 


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.  

Stock investing includes risks, including fluctuating prices and loss of principal. 

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. 


Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below:

This text is available at https://www.228Main.com/.

That Unimaginable Future

photo shows silver pins interconnected in a network of black string on a white board

As humans, we sometimes have trouble visualizing that which is not yet in existence. Back at the dawn of personal computing, when some were predicting that most homes would eventually have a computer in them, a common question was, “Why would they?”

People just struggled to imagine all the uses that would emerge.

Later, after the wonders of cable television spread across the land, talk of a new kind of communication technology arose—sort of a two-way or interactive television. These earliest visions of the internet were also met with dismissal, as people wondered what good that would be.

The lesson in this history? It may be that we are only ever scratching the surface of the potential capabilities of emerging technologies. There are many things on the horizon: ubiquitous internet access across the globe from low Earth orbit satellites, 5G and 6G and ever-faster connectivity, cloud storage of software and data at ever-decreasing prices, the “internet of things,” virtual reality and augmented reality, electronics in more and more devices… and much more.

The possibilities thrill us.

In our research, we assume that it’s beyond our capacity to foresee all the applications on the way, but we also believe that perhaps their ramifications can be guessed at. For instance…

  • More semiconductors will be needed for more devices.
  • Screens will show up in many new places on many new things, we can reasonably suppose.
  • We can readily imagine that mobile devices will handle increasing amounts of data and apps.
  • Information storage and traffic on mobile could expand exponentially.

So instead of pretending we can predict that unimaginable future, we strive to understand the structure of related industries and how these relationships might develop. Then we determine which established companies may benefit, and we’ll try to identify emerging companies with key technologies.

Then, we sort this out into what is investable, and we manage portfolios in keeping with this background. We don’t predict the future; we imagine some probable possibilities.

Clients, if you have some insight that might help us, or want to talk about this, please email us or call.


Want content like this in your inbox each week? Leave your email here.

Play the audio version of this post below: