For the first time in my life I love to shop for groceries.  Face mask on, running shoes tightly tied, I swerve between the aisles and away from other shoppers, grabbing items off the shelf as fast as possible.  It’s free-form, almost chaotic, and reminds me of my youth, downhill ski racing with my friends.  More on that later, but first back to the grocery store.  From the deli, to the meat counter, to the opposite end for ice cream, swerving to avoid collisions or close encounters with other people.  Eventually heading to self-check-out, I insert my credit card into the chip reader and am soon gone without interacting with a single person.  It’s all rather strange.  I don’t really feel safe, more like I have managed to escape.  At the same time, I feel no sense of community.

The Covid-19 national crisis is impacting our country in profound ways.  Our health, our economy, and our sense of community have all suffered.  I had been hopeful that this national crisis would unite us, but I fear that our political and ideological polarization may survive long after the virus threat is gone.   

It does appear that social distancing, self-quarantines, and business closings have slowed the spread of the virus.  It will eventually run its course while therapies and eventual vaccines will be discovered.  Meanwhile, our economy is starting to reopen, and it will recover over time, although not smoothly.  However, it may take more effort, or perhaps creativity, to rekindle a sense of community, especially since technology makes it convenient to remain isolated.  More people may prefer the safety and convenience of working from home well past the threat of the Coronavirus.  In some lines of business, productivity may actually increase from more people working remotely.  But what does it do to relationships and team building within an organization? 

Some people prefer solitude and isolation.  While there is nothing wrong with that, isolation can be debilitating for others.  At some point, we must reconnect with our neighbors, with our community and we have to do this before it is 100% safe to do so.  My sense is the debate about when it is safe enough will continue throughout the remainder of the year.  In my view, what endears us so much to our health care workers is that they are doing their jobs even at personal peril.  Can the rest of us find a way to serve others, to build community, to be good neighbors, when health risks, though minimized, still exist?  Can we as a nation, step up to this noble challenge?   

In practical matters, the vast majority of our country wants to go back to work and they want to experience some level of personal interaction and community.  Most people are not wired to remain in isolation.  Local, state, and federal government officials are in some cases impeding this process, but in other cases they are offering sensible solutions.  It’s a difficult responsibility, and we should be supportive of their efforts while holding them accountable for policy mistakes. 

Going forward, from an economic perspective, there are countless potential scenarios related to Covid-19: restarting the economy, government debt and out-of-control spending, zero interest rates, upcoming presidential election, and stock price valuations, to name only some of the key issues.  It’s nearly impossible to predict what will happen in the next year with any degree of certainty.  Given this heightened uncertainty, we are utilizing several prudent investment strategies: 

  1. We are maintaining a relatively high level of cash across all our equity portfolios (approximately 15%).
  2. We are continuing to hold a position in gold (GLD) as a hedge against inflation and economic uncertainty.
  3. Our stock selection is focused on companies with these characteristics:  low debt, strong cash flow, industry-leading positions, high return on invested capital (ROIC), and stable revenue growth.
  4. We are using the extraordinary market volatility to take profits after short-term rallies and adding to names after short-term corrections.  Patience and discipline are paramount.

Uncertainty creates risks but also presents opportunities.  We are doing our best to mitigate the former while exploiting the later.

Back to the downhill…  The most fun I ever had ski racing was when we would hide in the woods at the top of the mountain, wait until the ski-lift operators turned off the lights, then race to the bottom navigating only by moonlight. Racing in near darkness seemed foolhardy to some, but we knew the mountain and we knew our limitations.  Was it 100% safe?  Not hardly, but nothing worthwhile ever is.

Michael Kayes, CFA

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