Either the world is ending, or its not — or maybe there is a third option, a kind of middle ground, nobody knows at this point, and anyone who says they do is just making stuff up. But one thing I reflect on at a time like this is that where there is chaos there has always been opportunity.
A few years back I read “The intelligent investor” by Benjamin Graham, the professor at Colombia who became Warren Buffet’s teacher and mentor. Graham was a pioneer of value investing, a way of trying to find businesses which are undervalued by the market, but which represent a margin of safety that is high enough to make the investment look worthwhile. This idea is essentially why Warren Buffet is so rich. It’s a very boring way to get rich — but it seems to work quite well. The book is essentially a guide to do it, or why it’s a bad idea, depending on how you read it. To sum up the 500 pages as simply as I can, it would go something like this.
The odds of knowing if a stock will go up or down isn’t quite zero — but its pretty close.
I only really remember a few things from the book (aside from that quote), but one was a comment about economies during the last depression and how to identify investment opportunities during those times. Despite the doom and gloom of a failing economy, which is perhaps on your mind this week, there were two particular products which thrived under those conditions.
Chocolate bars and Perfumes.
Why do people buy chocolate during a depression?
Why is that exactly? It turns out, when times get difficult, people start looking for very cheap and simple ways to have a good time. They don’t just give up all together on being happy. A pomegranate can be a great gift under the right conditions.
Instead of people shelling out $600 for an Xbox, seeing a Movie for $20 becomes a better way to entertain themselves. Splurging on a pizza instead of a fine dinning restaurant becomes a way to bring joy. People look for the same dopamine fix, but they lower the financial barrier to get it — and the economy keeps turning, just on smaller wheels.
Any kind of purchase which delivers a small amount of happiness when times get tough is what people gravitate to and things like confectionary and bottles of perfume for a birthday presents mean that those sectors will actually outperform the rest of the market when things go bad. We know this because we saw it happen during the great depression. It is the same reason small car sales go up the more expensive petrol prices become.
There are more obvious examples of thriving sectors today. It comes as no surprise that right now, supermarkets around the world will probably having a great quarter, but jewellery stores are probably worried.
Does this mean chocolate and perfumes are the future of economic growth? Who knows. If there is one thing I’ve learned about this stuff is that it’s difficult to see around corners. But humans like to try.
Think of the future as a problem to solve
I really believe in peoples ingenuity in a crisis. I also think we live at a time where innovation is more of who we are than at any other time in history — this is particularly true of those who work in software, where solving problems is what we do.
I like to think that even if things do become difficult on the job front for some of us (we’re certainly not protected from total economic collapse), there will be new problems to solve - and where there are problems, there are opportunities to add value.
If, in the last few weeks, you’ve been laid off or are struggling to find work, my council is to obviously stay safe, but perhaps think more laterally about where the opportunities might lie and how your skills fit into that story.
What sectors are likely to thrive under new kinds of market conditions? What businesses do you know who are set up to capitalise on the conditions, and do you have skills which could help those businesses grow?
In the end, this is just another problem to solve. So remember, You got this.
