Letter from England
Investing in a Changing World
Looking back to the Pandemic in the Spring of 2021
(Note: Should have published it a while back, as it’s now 2023)
Ok, so here we were in another crazy world, emerging from the pandemic in the approach to the spring of 2021.
How do you make money?
The rewards are like marshmallows. Maybe you roast them on an open fire and sell them to passers-by on a winter street?
The Stanford marshmallow experiment was a study on delayed gratification in 1972 led by psychologist Walter Mischel, a professor at Stanford University. In this study, a child was offered a choice between one small but immediate reward, or two small rewards if they waited for some time. (See details on Wikipedia.)
The results on the behaviours of the children about delayed rewards and assessment of personality have since been debunked, but the principle is worth considering for adults.
It is difficult to time the market. How much is enough? You may be late to the game, but can you make some money? Yes, you can. But when do you sell? How much money is enough? The general principle is that investments in shares should be medium to long-term investments, that is at least for three years, the longer the better.
If you find external events affecting the investment value of shares you hold in a company, is it purely an overall market sentiment on a significant event or is it something wrong with the company? Do your research and try to understand the business and how it is valued.
Spend, Save or Invest?
So what are you? A saver? A spender? A trader or an investor?
A saver, having earnt to money, puts some aside as their money, before using the rest to live, eat, pay bills etc. Some savers, aware that other people may be worse off than themselves put some of their savings into a charity box or account. From time to time they use this to contribute to a worthwhile cause or to help someone who they may or may not know in these difficult times. the rest of their money is used as a buffer, an emergency fund, in case unexpected expenses arise in their lives.
A spender sometimes tries to keep up with the Joneses. The spender has to have the latest, greatest mobile phone, watch, car, clothes etc. They can borrow some money to pay before the next paycheck. But what if the next paycheck doesn’t come? What if they lost their job or their customers went elsewhere?
A trader tries to buy low and sell high, usually over a relatively short period. They may make or lose some money. So how do you make a small fortune? Start with a large fortune and try to be an (inexperienced) trader and end up with a small fortune. Yes, it is a learning curve and some people make a lot of money. Some don’t.
Investors try to buy low, but intend to hold for a longer period, maybe three years or more. They could be looking for capital growth or income from dividends or a combination of the two.
The Influence of Social Media
Social media has exacerbated the situation. Sitting at home, people looked for additional ways to make some money.
Users on Facebook or Twitter and more recently on Reddit have discussed companies, suggested purchases and in a particular instance ganged together to buy an out-of-favour company which the hedge funds were shorting. The results were advantageous for some, disastrous for others, and the mobile app by Robinhood which offered ‘free’ trading was not what it seemed.
So where do we go from here? For the moment, if you are not involved in the Gamestop share trading, don’t panic. I am not in a position to advise you about what you should do. In the end, you have to do your research.
The problems in media have been exacerbated by some conspiracy theories. This has resulted in people being censored and removed from various platforms for discussions with no factual basis, for questioning the risks of the latest technology in mobile telecommunications. Also, it has been shown that comments on platforms like Twitter have been used to market interest and trade in cryptocurrencies. Then there have been problems relating to political matters, which are outside the scope of this article.
In Conclusion
But as we emerge from the ravages and lockdowns of the pandemic some trends have emerged, which may influence your approach to investing in key areas:
- Commodities shortages — due to breaks in just-in-time manufacturing
Many factories and retail stores' attempts to supply goods from limited inventory storage were disrupted by the lack of supplies, together with panic buying by customers.
An interesting area was the supply of electronics from business to business, which disrupted the supply of new cars. This hyped up the price of cars in the second-hand car market!
Helium gas provides an inert atmosphere for chip manufacture. Some equipment to manufacture chips may be supplied from areas hit by real wars or trade wars or just political change.
2. Petrochemicals
The dilemma of the use of petrochemicals is not easy to resolve quickly. Plastics in packaging and products, coal and gas used in power stations cannot be switched without the modification of supply chains.
So you may be able to make money from circumstances that arise in companies associated with work in this area.
3. Alternative Energy Sources and Supply
Building power stations take years. Decommissioning old power stations has to wait until replacement energy sources are in place.
Also, infrastructure is needed to deliver power from the new source to consumers; charging stations for cars, battery storage for solar cells and wind turbines, and power grids to deliver from new power stations.
Some people attempt to go off-grid, obtaining power locally with little need for external supply. Did you know solar cells are manufactured from coal?
4. Electric Vehicles
Yes, nice idea. I’m very impressed with the push by Elon Musk and Tesla Motors in this direction. But infrastructure needs to be created to deliver the required energy to consumers for charging locally.
More to follow on all these areas as I explore them.
Any feedback is appreciated!
