I'm going to try something different, today.
Rather than writing something that's my usual length and detail, I'm going to share a few different thoughts about business, investing and the economy.
If you love it, let me know. If you hate it, well… let me know (nicely).
A pounding for the pound
There is politics, there is ideology, and there is what UK PM Liz Truss and Chancellor of the Exchequer (essentially the UK Treasurer), Kwasi Kwarteng are doing to the UK economy.
Normally, the big end of town would cheer tax cuts for high income earners, but it's been those self-styled Masters of the Universe who have been quick with their condemnation – not in terms of polls or editorials (though those have been scathing), but they've voted with their wallets.
The British pound plunged, the Bank of England has had no other option but to buy UK government bonds (while other central banks are doing the opposite), and the net result of both is that inflation will likely rise from already staggering levels.
There's brave. There's crazy brave. And then there's the UK government. This probably won't end well for them.
AGL's bet on the future of energy
Plenty has been said and written about Mike Cannon-Brookes' influence at AGL Limited (ASX: AGL). But it came to a head this week, with the company announcing that it would bring forward the shuttering of a Victorian power plant, called 'Loy Yang A', that is reportedly the largest polluter and energy producer in the country. It'll now happen in 2035, a decade earlier than originally planned.
Maybe it's MCB's green dream showing through. It's almost certainly part of the story. But here's a question for you: If I asked you to spend money, between now and 2035, to produce energy from coal between 2035 and 2045, you'd probably baulk at the request. No-one knows what government policy will be in 13 years. And the forecasts are that (some) renewables will be producing (perhaps much) cheaper energy by that point. Are you going to spend many millions for an uncertain return?
Environmental activism aside, I wouldn't want AGL betting on coal past 2035 if I was a shareholder.
Rollercoaster, thy name is share prices
I've covered market volatility regularly over the past few months, but one additional quick thought from me: If you were looking to buy a whole business, either as an investment or to run as an owner-operator, I reckon you'd be pretty keen if you were offered a company that was having some temporary challenges that was being sold at a cheap price. A cafe with a 3-month road work project going on out the front. An importer whose sales had fallen due to the temporary unavailability of a key product. You get the idea.
Warren Buffett (he's kind of a big deal) bought shares in American Express when the company had been the victim of a fraud, and the share price sank. He reasoned (correctly) that the storm would pass, and the business would continue to be a wonderful one to own, particularly at a knockdown price.
A little more recently (it feels like longer!) Woolworths Group Ltd (ASX: WOW) lost its way, and the share price fell 45% between mid-2014 and mid-2016. Was this a broken business? Not in any permanent sense, but it was hard to find any love for the company. Fast forward to today, and the shares have doubled over the last six years. Add in dividends, and the gain is closer to 140%.
Or, the market as a whole, which turned a hypothetical $10,000 into $130,000 over the 30 years to June 30 this year, despite fear, panics, slumps and crashes (thanks Vanguard for the info).
It pays to keep your eyes on the horizon, not the headlines.
Holy meatballs, IKEA!
As if 2022 wasn't already bad enough (well, the whole 2020s so far, really!), apparently IKEA is rolling out new stores without meatballs. Without the whole food hall, actually.
I know. Me too.
But, other than being a crime in and of itself, the announcement underscores a bigger point for investors.
What IKEA is doing from one direction is what Amazon (I own shares) is doing from the other: it's opening much smaller stores, essentially as showrooms, with the products ordered there and either delivered or picked up from a nearby location.
This is increasingly going to be the future of retail, particularly in urban and suburban areas. There's a proliferation of same-day delivery companies cropping up in Australia (it's been increasingly common for a while in the US), and Amazon recently moved its Prime program from free 2-day shipping to next-day in many of Australia's urban centres.
At the same time, Premier Investments Limited (ASX: PMV) (it owns Just Jeans, Smiggle, Peter Alexander and more) already books almost a quarter of its revenue online (and online sales are growing 4 times as fast as total sales). And get this: Myer Holdings Ltd (ASX: MYR) recorded a 34% jump in online sales last year, and its sales are now almost 25% online, too.
Yes, that Myer!
Retail is (still) changing. The winners and losers are yet to be decided, and it likely won't be a 'winner takes all' outcome. Business models will – and will need to — continue evolving. As should investors.
Quick takes
Overblown: I wouldn't bet that coal prices stay at or near record highs. Cyclical commodities are called that – both 'cyclical' and 'commodities' – for a reason.
Underappreciated: There's a story in today's Australian about the role of EVs as 'rolling batteries' for household use. Your mileage may vary, but it is a potential game changer for both the grid (no/fewer household batteries required) and transport (the ROI of EVs goes up, perhaps a lot, when you consider that dual role).
Fascinating: The climate pressure on companies is building, from both consumers and institutional investors (Super funds, in particular). Love it or hate it, it's changing the way businesses, particularly large ones, are making decisions. It could also make 'bad' businesses good investments if share prices fall as a result.
Where I've been looking: I'm a sucker for quality stuff that's been beaten down. I think we'll look back on September and October 2022 as an attractive time to buy some companies that rely on discretionary spending. The fall in share prices for retail and travel companies, in particular, strikes me as very overdone. Doesn't mean it can't fall further, by the way – just that I think these prices may well look very attractive in hindsight.
Quote: "Success in investing doesn't correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." – Warren Buffett.
Fool on!
