As I look out the window of my home office and watch the brake pads of my unused cars rust away, I find myself reviewing the need for two cars in the future. My wife and I will most likely be spending more time working from home in the coming years.
Since Boris, Nicola, and Mark started to talk of roadmaps to normality, I have been pondering the approaching end of the lockdown and what it means for the future. If you’re anything like me, or the people I talk to, I’m sure these final few months seem to have been the toughest. The end is tantalisingly close, yet still far flung, and fragile. Not only that, but its approach is both craved and disconcerting – will I be prepared for the next jarring change to my lifestyle? Because it seems likely that reversing some of our new habits and routines will be just as difficult as the past year. Commuting? I hate commuting!
Getting back to the office, and the shops and restaurants will be fun, and I am looking forward to it, but a lot of my social skills are as rusty as my brake pads and I’ve gotten used to the sleep-in too. It goes further than that as well. I’m aware we’re entering another widespread period of change. Perhaps it’s just the second part of one great big flux. And as an investor, it’s my job to decide which companies will benefit most from these changes. In markets, it feels a
lot like we’re in recovery, the vaccines worked and we’re all flying to Benidorm again. The chances of switching to investing autopilot, leaning on your assumptions and making crucial errors in judgment seems heightened to me.
With great change, comes great responsibility
It’s a well-known maxim of investing that periods of great change offer great opportunities for making money – and they also offer great opportunities to lose your shirt. The past 12 months are a sterling example of that. The value of stocks and bonds have sunk and soared numerous times. Some shares – think GameStop – have made lucky investors a fortune, while cleaning out others who bought or sold at the wrong time. I remember a while back, thousands of small investors in China lost more than they had invested after taking a punt that oil prices could
only go up from zero. They plunged deeply negative in one of the more bizarre turns of recent times.
When investing, I avoid buying something because I think it may have a good six months or a solid year ahead of it. I’m nervous about buying something that I’m not all that fussed on, but that I may be able to flip for a few bob more in a year or so. It’s too dangerous, in my opinion, because I don’t know how the future will go. And if it goes against me, I’ll either be left with something I don’t want, or I’ll have to sell it for a loss.
I have spent a lot of time with my team looking at how the pandemic and its effects will change the world in the coming years. And in which ways the old world will prevail regardless. There have been huge increases in public and corporate debt, and household savings have rocketed, even as many other people and businesses have been thrown into turmoil. We have been looking at companies that we would want to hold for the next 10 years.
We are looking very carefully to determine the opportunities businesses are offered, the risks they will have to take and the flexibility they have to make the most of both. How competent are their managers, and how rigid are its business operations? We like investing in businesses with relatively low levels of debt and those that produce a lot of earnings in cold cash rather than promises to pay later, because while money can’t buy you happiness, it can buy you
freedom. Having lots of cash flowing through your business means you can pull the trigger on lucrative new projects or buy up struggling rivals when the time is right, not when you’ve finally managed to rustle up the funding.
Breaking the bubble
So, as the end of lockdown approaches, I am excited, and I am nervous. Life will return, opportunities will return, risks will return. In a few short weeks, I will be presenting at The Scotsman Annual Investment Conference, this time remotely. It will be a pleasure, but I’m really looking forward to 2022 when I can present in person again (if they’ll have me back!). If there’s one thing that lockdown has taught me, it’s the importance of getting out of your bubble. Visiting others, hearing different views, seeing different things, this is extremely important and something I have missed greatly.
David Coombs, Head of Multi-Asset Investments, Rathbones
David is a panellist at The Scotsman’s free Annual Investment Conference on Tuesday 30th March in association with Martin Currie and Rathbones. Register here.