Thoughts on investment (24) – What we do in a crisis?

In the past few months, the world has experienced a lot, many never even could not imagine before, and so did the market. The market has become extremely volatile, as investors tried so hard to digest what this pandemic would mean to the future world?

Even if we believe most of the things would be back to normal in the future once this virus phase out, the magnitude and length of this impact we still need to process, as many companies may not be able to survive long enough, and some things might be structurally changed and never can get back to where they were. For example, during the SARS epidemic, many Chinese got used to use e-commerce, and that effects helped the surge of e-commerce industry and Alibaba. 

In short, during a crisis, what we are looking for are two things:

1, Those (both demands and company itself) solid enough to guarantee a comeback;

2, Those benefit from structurally changed or expedited future trends.

Welcome economic reopen and prepare a prolonged pandemic period

It is clear that the western world cannot sustain in a constant lockdown, both economically and politically, meaning we will have to face an economic reopen even though it might significantly expedite the virus spreads. 

The good things are we are largely able to come up with enough supply of medical and personal health protections - ventilators and masks. Those are crucial to prevent our medical resource got exhausted in case the endangered victims number spikes again. Our manufacturing ability is proven reliable in the hard times, which is very relieving.

The medicine and vaccines are the final blow for the virus, though we may still need another 12-18 months, thus we have to try to adjust ourselves to coexist with this deadly virus. With this virus is actually ubiquitous, I believe even testing and tracing would not help as much as people thought. Prolonged practicing social distancing, mass usage of mask, performing good personal hygiene are still very essential, even though we are trying to back to normal. The constant back and forth is inevitable, meaning it would take a longer time to come back to where we were months ago, and the economic recession might be lengthy and more gradual to recover than many investors expected.

Embracing the future even in an uncertainty world

I am still browsing through the details of recent quarterly reports of many companies and I am actually becoming more optimistic about future even some of the numbers are appeared to not that good, understandably. To be specific: not all numbers are largely beating the expectation, but many of them are proven better than feared, many in areas as internet ads, e-commerce, software, clouds, EV, education, and even in some hardest hit areas as catering (incredible), etc. The reasons I guess are:

1, Many are benefiting from the pandemic lockdown, especially from ecommerce, online gaming, online education, video conferencing, etc. The lockdown is constantly bringing in free new customers (no need advertising, marketing as normal times do) and those habits once formed might be very persistent even after the virus phase out. Clearly the investors are appreciating these future trends a lot.

2, Some needs actually much stable and resilient than feared. For example, because of the lock-down period, the DAU and activity on FB’s platform surged, with 11% DAU growth and significantly time spend growth, and that activity increase translated into much stable revenue in the hard times (April number flat vs -15% expectation), even under a situation of its price/impression dropped by a 16%.

3, The giants simply have much more cushion to soften an impact. Some of them have a plenty of order backlog, especially for software providers, making them much better place to ease the fluctuation; for example, ServiceNow has a booking log 1.5 times of its revenue; Some of them have a huge money in bank (GOOG nearly 150b and FB 60b), and they have a much higher margin to mitigate the impact, as FB significantly cut operating expense and capex to smooth this impact.

4, The tech giants actually gained many competition advantages as they have plenty of money on hands, higher margin, more determined investment decision than the traditional guys. It is clear to say that after the virus, TSLA will almost no doubt become the leading power in EV market, as all of its competitors suffered from the virus impact and its consequential huge loss: Ford reported huge loss of nearly 2b in a consecutive quarter and that might not even the worst. Those traditional OEMs are too scared to commit any investment in future technology, making TSLA’s leading position even greater.

5, Investors are chasing those who can gain shares in hard time and leaving those losing shares. For example, Apple, Tesla, McDonalds are all gaining shares, simply because of their brand image and much stronger attraction for customers. And people are generally embracing the future when hard time come, they are more willing to cut outdated tech and stay with the future tech.

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欢迎阅读往期内容：

1. 投资思考随笔21-疫情对投资的影响推演和思考