COVID has brought about many changes and challenges.
Workplace changes and its challenges
Work is not the same again now that you can get away from long haul flights and carry on business with Teams / Zoom calls. Work from home has also introduced Zoom fatigue. Where we used to plan travel buffer time between meetings, Teams / Zoom basically allows back to back meetings on the hour every hour. This has brought about meeting fatigue. Naval Ravikant said it best
“Meetings should really be phone calls, phone call should be emails, and phone calls should just be texts.”
This policy allows Ravikant to have a similar clean calendar policy like Buffett. Unfortunately, Zoom meetings tends to clutter up the schedule.
On a lighter note, being able to zoom call at work means that employees have the option of doubling up on their calendar schedules as well. Employers should expect a significant amount of moonlighting. Google employees could end up working for Facebook at the same time while Facebook employees could end up fixing Ikea shelves too! See the hilarious twits below.
Consumer changes and its challenges
We have a significant allocation to consumer companies in our portfolio. It’s meaningful to ask how the pandemic has accelerated or made permanent changes in user behavior. Businesses have to adapt quickly. Some moats will widen, while others will evaporate.
Starbucks
Omni-channel sales was an old buzzword of the previous decade. The pandemic is driving through new business opportunities. Starbucks has developed curbside pick up (for drivers) and also new format (counter top pickup). Rather than sit indoors, the new Starbucks experience prioritises pass-through traffic. Starbucks intends to roll out 2,000 stores with designated parking lots, where customers can pick up orders placed through their app. This allows customers to avoid long queues at the drive through. In Chinese cities, Starbucks Now is a small format store where consumers can pick up their order and go. It also helps that part of the Starbucks attraction in China is being seen carrying the cup and its logo as you walk to …..your office? or home …. hmm?
Nike
Nike has been going through a long term transition to sell direct to consumer before COVID struck. Covid has accelerated this change. The traditional model for sportswear manufacturers was to sell through wholesalers. This model still accounts for 2/3 of Nike’s revenues. However, selling direct to consumers (ie through company owned channels like physical stores and the company’s own website) has been fast growing this year. Pure digital sales are now 30% of the business and continues to drive +30% growth. Also, Nike was fortunate that they had already planned their direct push to consumers early on. The newly appointed CEO, John Donahoe used to be CEO of ServiceNow, a cloud company, and was also CEO of eBay. He is also the current chairman of Paypal.
Forecasting changes and its challenges
Forecasting is an old skill. It used to be so imprecise that it was indistinguishable from fortune telling. Investing requires the investor to make some forecasts of the future. Professor Philip Tetlock has done a lot of research on this. As a psychologist he has watched experts make wrong predictions about the collapse of the USSR, and has also worked with American Intelligence to figure out if the forecasting of world events can be improved. It turns out that foxes are better forecasters than hedgehogs. Tetlock is referring to the Archilochus quote :” The fox knows many things; the hedgehog one great thing.” Tetlock takes hedgehogs as the type who will expand one sphere of knowledge into many other domains, foxes on the other hand are skeptical about a single theory of everything , careful in forecasts and adjust the forecast based on events as they occur. Sometimes hedgehogs will get things right. Foxes, on the other hand have a significantly higher success rate in both short term and long term forecasts.
As an investor, it helps if you keep both in mind. Read widely like Charlie Munger. This helps improve the accuracy of your forecasts. Finally, try to have some theory and be a litlle hedgehog like. George Soros has often applied his hedgehog “one big idea” of imperfect knowledge to markets and politics. Indeed, his batting average usually hovers in the 30% range, but it’s his idea of relentlessly cutting losses and doubling down on winners that has built up his reputation of being a formidable investor.
Year end forecasts
2020 is a year of plot twists and cliff hangers. There will be people who want forecasts as they dislike uncertainty. Uncertainty on the other hand, presents opportunities to the investor. We continue to be fully invested. Careful investing all!
