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Re Think Everything



THE DRAWING BOARD


Every business decision should be back on the table for review.  Every system, process and platform.  Every headcount and every cent spent right through to the fundamentals: Who is your audience? Who really owns your audience - you or Facebook?  Is your value proposition still relevant? Is your product or service seen as a must-have or a nice-to-have? Is your team as good as their LinkedIn profile? Are your data points built on vanity metrics or actionable intelligence? 

EVERYONE LOOKS GOOD IN A BULL MARKET

Quality and true leadership rise in adversity.  Volatility is the ultimate litmus test.  It reveals flawed business models, exposes mediocre management and removes the cloud cover around weak balance sheets and inflated valuations. Complacency is the pillion of bull markets.  There’s a direct correlation between our tolerance for mediocrity and the dubious with the performance of markets.  Near death experiences, however, have a way of resetting our perspective and returning a clarity of vision.  They’re also a timely reminder that company failures are part and parcel of capitalism.   For many businesses, this crisis presents an existential threat.  The difference between demise and survival is based on the decisions made now.  There is no white knight.  There is no one is waiting on the sidelines to help.  Doing nothing is not an option.

 VOLATILITY CREATES OPPORTUNITY

Mankind’s greatest strength has always been our ability to adapt.  Human progress has been built on opportunism, mistakes and iteration.  From teflon, WD40, Viagra, Netflix, Post-It Notes, Botox, the AFL Footy Show, Canva, penicillin… Now is the ideal time to present solutions to problems we didn’t know we had.  Who would have expected Zoom to become a household name, ResMed and Dyson to switch manufacturing to ventilators, dating app activity to spike, gin distilleries to start producing hand sanitisers… The goal posts for product market fit have shifted.  The door is open for iteration or new players to slot in.  While we are still in the midst of a major health crisis, we still need to focus on and support opportunities that support the community.  The economic and social repercussions of not moving forward create a far more dire outlook that will take a generation to work through.  Areas that will come to the fore include: - Telehealth - Ecommerce - Data intelligence - Logistics - Online education - Online collaboration tools - Content - sport, gaming, streaming, podcasts - Social networks - Cashless payments - Data centres - Online dating apps - Cloud There has never been a better time to engage corporates with new, better, innovative and cost effective solutions.  Everyone is listening.

THE LITMUS TEST

For other sectors, this will be the first time that their models will be thoroughly stress tested.  Consider: Buy-now-pay-later.  It's hard to get excited when a pawn shop sees a spike in activity.  It's seldom good news.  The real telling factor will be just how many people will struggle to repay $150.  Will this be the catalyst for regulatory change?  Whatever you call it, this is a credit product designed for an audience who were amongst the first to lose their jobs. Fractional property ownership.  Like any market, it relies on liquidity.  That's gone.  Additional headwinds will be faced by the reality that assets were acquired in premium suburbs at the top of the market.  Watch this space.  Private equity.  PE Is built on debt loading acquired companies.  The revenue side of the equation to fund that debt has now dried up.  The market to sell those assets in closed.  It smells like a fire sale.  Watch for smoke. At the same time, other names will likely hold true despite what some share price moves may suggest: Invocare (IVC).  Should be one of the most defensive names.  After all, it has one variable...and that seldom fluctuates.  When it does, it tends to self-correct pretty quickly.  That said, the stock is off 30%, at a time following a horrific bushfire season and now a pandemic whose impact we cannot measure. Xero (XRO).  2 million sticky and loyal customers.  Will see some business customers close but will benefit from a whole new generation of business people as the cycle turns.  After all, it's unlikely that corporates will re-hire all positions shut in the medium term. Dominos (DMP) / Collins Food Group (CKF).  Fast, convenient, cheap.  The food of choice when every cent counts for a population stuck at home (with kids). Please note that this is not designed as a trading tip sheet but rather a perspective for consideration.  After all, markets are a direct insight in to our collective state of mind...


TAKEAWAYS

  1. Hope is not an investment strategy.

  2. Volatility creates opportunity.  Restaurants are focused on takeaway.  Esports are filling the void left by live sport.  Dating apps are stepping in to maintain human connections.  Podcasts are keeping us entertained and informed.  Video conferencing platforms are keeping our families together...

  3. Panic and common sense are natural foes.

  4. Look after yourself - physically and mentally - your family, your friends, neighbours, colleagues and staff

  5. What we do now is how we will be remembered.  How do you want to be remembered?

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