How to invest with a focus on the most important skill any company (or individual) can have.
When we invest, we strive to place our money with companies that can weather inevitable recessions and economic storms. When we search for a life partner, we hope to find someone who will be there for us in sickness and in health, whether we’re rich or poor. Likewise, when we take a new job, we seek to find a role within a company that stays abreast of the latest technology and industry trends.
Why? Because the ability to adapt, evolve and roll with life’s punches is everything. When change is the only constant, adaptability is the only skill we need to succeed. Historically, the ability to adapt has been the deciding factor in whether societies survive or not. On Wall Street, it’s oftentimes the key differentiator between success and failure, both for companies and individual investors. Even if you’re just beginning to invest, you’ve likely already been advised to set aside an emergency fund. Why is that one of the first things taught? It is because if you don’t have a place to turn when circumstances change, your ability to pivot and take advantage of the next great opportunity is severely hampered. When we cannot adapt, failure is inevitable.
COVID and the ensuing health and economic fallout has caused an untold amount of anxiety, pain, and loss. Yet at the same time, we’ve seen the stock market surge, and I’ve gotten the same question from all of my clients: “Why?” Why is it that we have just experienced the highest unemployment rate since 1933, a global recession of a magnitude not seen in over 100 years, and a stock market that seems totally out of touch with worldwide economies?
I could answer that with details on the K-shaped recovery’s disproportionate rebound or tell you this recession is hitting the world’s working poor the hardest, not Wall Street, because all of that is true. What is also true is many of the big companies that have kept our portfolios humming along these last few months have done so because they’ve adapted. As investors, we can no longer evaluate companies just by looking at their P/E ratios, corporate earnings, and management. We’ve also got to start looking very closely at adaptability. Because when you do, a picture of what our future stock market may look like begins to take shape. Over the last 12 months, companies that have been able to pivot their business models as the market demands, expand their offerings, grow (or contract) their workforce, and create intellectual and technological shortcuts to the way business is transacted have come out on top. They have laid down the dividing line between what kinds of companies can succeed in 2021 and beyond, and what kinds can’t.
To a certain extent, we’re here now, because of technology. Have you thought about just how impossible our working lives would be if the pandemic had happened in the 1990s? It’s truly unfathomable. Although just because current technology has helped us draw a line in the sand between the companies we can rely on in a remote society and the ones that aren’t going to make it, it doesn’t mean we haven’t been here before.
Adaptability Throughout History
In 1920, when Alexander Graham Bell’s invention became a standard option in all new home construction, it changed global communication and the way we conduct business much the same way Zoom did for us in 2020. In a few decades, we gained cell phones and the internet, and most recently landlines have been rendered obsolete. Companies that are still successful players in the communications space had to do a lot of adapting over the last 100 years..
I would be remiss if I left you believing technology is the sole driver of change, as that is hardly the case. In 1969, Hanes adapted to the needs of a growing chorus of newly working women and created L’eggs Pantyhose. Those little plastic eggs, conveniently available at supermarket checkouts, drove the company stock to new heights.
In the 1970s, as more American families moved to the suburbs and their driving needs changed, the classic muscle car was on its way out, and the family vehicle was on its way in. Volvo saw what was on the horizon, and focused their messaging on safe, well-built vehicles that could get your family securely from work to school and back again. Peter Lynch, the famous stock prodigy who helped put Fidelity on the map back in the 1970s, said the best two stocks he ever picked were Hanes and Volvo. He had seen their capacity to evolve and recognized the value in that.
Throughout history, there are countless examples of corporate adaptability, both good and bad. Perhaps Compaq, Studebaker and Kodak would still be around today if corporate leaders had been looking more closely at the writing on the wall. No matter which examples you seek, you will be presented with the same proof: The companies able to adapt are the ones that can control their futures, and the same can be said for people.
Those of us on track for future success have a financial plan, an investment plan, and an estate plan that we can adapt.