Food & Beverages in an Age of Tech Euphoria
This Quick Take is simple. We think the market is in the process of transferring wealth from the impatient to the patient. Amidst a haze of get-rich-quick stories we are pounding the table for caution and patience. We admit that “pounding the table” to stay calm and be careful sounds a little ridiculous. But hear us out.
Our Charts for the Curious section is filled with charts highlighting the speculative frenzy in high flying and money-losing firms today. Our extensive library of work shows that history is unambiguous about such fads. They end. Badly.
Are Treasury Protected Inflation Securities the Only Option?
Earlier this year we did a deep-dive into what worked and didn’t work during the inflation of the 1970’s. The conclusions were as compelling as they were intuitive. Investors did well investing in companies that made stuff people need. Later research showed that investors following the crowds faced a “duration” crisis.
Low interest rates and lax lending standards have left safety and income oriented investors with limited options. In his 1991 book “A Margin of Safety” Legendary value investor Seth Klarman noted that “…when interest rates are unusually low, investors should be particularly reluctant to commit capital….” His rationale being that you cannot be certain rates will remain low.
Friday’s headlines were dominated by soaring food inflation. On Monday this week, U.S. Treasury Secretary Janet Yellen announced higher inflation and higher rates would be good for the country. Despite this, investors have never been less interested in stocks that benefit from inflation.
The chart below is a great example. Food. Drinks. We think people will buy that stuff in good times and bad. The companies that make them have never had lower representation in the index than today.
The Best Hedges Against Inflation Among Equities
The next chart shows the incredible payoffs to those who stuck to the basics. The patient.