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A note regarding portfolios and markets in a "COVID World"
At Ferris Capital, we have guided our investment and financial planning clients through a number of market cycles and trends. Recent market crashes or corrections (the credit crisis and dot com crash) were generally centered around overvalued companies which created sector bubbles in finance and technology. COVID has effectively forced a global economic hard-stop impacting not only company earnings, but also employee incomes. Unlike previous market corrections, the COVID economic impact has been significantly mitigated as a result of the massive fiscal support by the federal reserve and extra unemployment payments. The massive government intervention has left a large part of the work force with some level of funds to support the basics such as rent, cell phone bills and car payments. At Ferris Capital, we stick by a few key investment principles and rarely deviate from our core philosophies. One key investment thesis is "Never fight the Fed" which means if the Federal Reserve is supporting the US economy, economic activity will eventually return to normalized levels and to stay the course. Most importantly, it is about having a financial plan to help guide you during the periods of tumultuous volatility between Federal Reserve action and recovery and periods of political uncertainty like the upcoming US presidential election.
Market volatility is a normal part of each growth cycle of the US economy. History has taught us that great companies are formed and can grow exponentially due to the innovation and talent of the American work force. One need only look to World War II when European companies were rationing food and US companies were exporting massive amounts of staples to the world. Great candy products and companies like M&Ms and Hershey grew in spite of the rapidly changing US economy benefiting from the unforeseen circumstances of World War II. In a similar vein, COVID has and will continue to disrupt supply chains, and a host of other key parts of the economy. Business may not normalize for several quarters. COVID, like WW2, could likely decimate some companies and industries, or weaken balance sheets to the point it will take years to recover. Corporate earnings may be dramatically impacted for the majority of publicly traded companies. However, some companies and industries will potentially emerge healthier and stronger with robust corporate profits due to the shifts in the economy. At Ferris Capital, we are spending large amounts of time attempting to identify the effects of COVID on companies and sectors and seek to ensure we have exposure to the best US companies.
Adapting your investment strategy near term (1-5 years) to focus a portion of your investment assets in these companies and industries with large economic moats makes prudent long-term sense. In the past, we built our portfolios almost exclusively around low-cost index ETFs and broadly diversified investment managers, but like the great business leaders in WW2, we're adapting. Our long term investment philosophy is and will remain to be broadly diversified. However, due to COVID we think there are approximately a dozen companies that stand to benefit for years to come. We believe that some of these companies with the increased profits can be found in e-commerce, artificial intelligence and other companies that enable consumers to continue the new purchase habits and lifestyle decisions around the coronavirus.
Another one of our mantras is that "A fool with a plan gets further than a genius without one" and it's even more true in today's climate. To this end, we run custom planning scenarios where we stress test existing and new potential clients portfolios to the reality of the world post-COVID. The tests we are running are designed to reflect our most important philosophy of protect wealth first, never force a client to earn it twice is followed. COVID is making heightened inflation, election winners, the regulatory landscape, and tax law changes extremely important for long-term financial planning. Stress testing along those lines ensures we can help you make the changes now seeking to cement your lifestyle in the years to come. Too many families are forced to make tough decisions in their later years that could have been avoided with a financial plan created by seasoned professionals.
We'd welcome the opportunity to evaluate your portfolio for a post-COVID world check-up or help you plan for your financial future.
Ferris Capital, LLC (“Ferris”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Ferris and its representatives are properly licensed or exempt from licensure.
The information provided is for informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.