December 16, 2021

There’s a lot of doom and gloom in today’s headlines. Sensationalized business reporting is  leading many people to overly simplistic views about the state of the economy.

The pandemic is taking a big toll on many businesses, but talking holistically misses a huge amount of nuance.  As an experienced investor, I aim to understand the investing landscape by considering performance across multiple dimensions and segments.

For example, the retail sector is struggling right now but much of e-commerce retail is fairing pretty well.  Technology companies and many industrial goods companies are also managing the slow down well. Contrastingly, hotels and airlines are struggling mightily.

An industry-level view is just the starting point. To really understand performance, we need to next look deeper into states/cities and individual businesses:

Do companies have the kind of cash reserves that will allow them to ride out a storm? Or will they need to take dramatic and costly action just to survive the coming months?

Operating models give us another important dimension to consider. How much flexibility does a business have? Can it scale down during the downturn? If they have to sell assets or lay off workers, that’s going to have a real long term cost. Flexibility and adaptability show their value in times like these.

Also, demand is depressed right now, but what about the future? Some parts of the hospitality industry, like cruise lines, may never fully recover. Safely operating a nursing home may become more expensive going forward.

On the other hand, many industries can expect a return to normal. Sports leagues are bleeding money right now, but their demand is stronger than ever. Much of pro sports’ revenue comes from TV contracts that don’t depend on ticket sales. And even if they were to miss a whole or part of a season, the NFL, NBA, and MLB will definitely be back full force.

Most businesses fall somewhere between these extremes. Fine dining restaurants might have a hard time, squeezed between low cash reserves, lagging demand, and higher costs. But corporate chain restaurants with deeper pockets and lower costs will benefit from the reduced competition.

Alliance owns a lot of properties in the medical field, and we’re seeing a complex story play out. Many hospitals are hurting a lot right now as people put off certain tests and procedures. But many medical practices are doing fine as demand has come back after an initial dip.

With so much change happening right now, it’s important to look beyond the sensational headlines and think clearly. The fewer platitudes about the state of the “economy”, and the more concrete statements about specific business segments or individual companies, the better the dialogue for intelligently discussing the economy.

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