Once upon a time during Pre-covid era, we used to have literature festivals. During one of such events in early 2020, I met a best-selling author who has just published his new fiction book in English. Since I have known him for a few years prior, conversations flew. The most interesting point of discussion came about how the majority of readers are not fixated on a particular author now. They like to switch genres and writing styles at will without any concrete reason. Most who buy books are always looking for a favorable deal and their buying decision is from the places/people who offer them best value for their money/effort. The lack of commitment was worrying in the literary circles and publishing industry.
The investor in me has contemplated an extension of how this thought process has significantly impacted the businesses we have been investing in the past decade. Sample these changes:
(1) Employees are now less attached to their jobs and employers are less attached to their employees. Covid period saw mass resignations and job switches. People do not mind changing places (cities, states, countries) in search of better professional opportunities. WFH and hybrid mode has become the norm. Switching back to lower tier cities with minor pay cuts is also getting accepted.
(2) Cheaper Chinese products are preferred to expensive German products, despite poor durability. Cheaper and lighter MDF furniture is preferred over heavy long lasting pine wood or sheesham wood furniture. Easy to install and change ceramic tiles are more preferred to marble flooring. Ready to cook & eat food and beverages are gaining prominence even in traditional societies.
(3) The youth prefer live-in relationships over marriage as the intensity of commitment is much lower in such relationships. Even the jurisdiction is evolving to accept such less committal relationships as valid contractual obligations for parenthood and property sharing and inheritance.
(4) The “house of brands” or private labels of the large retail formats (Big Bazaar, Spencer, Reliance Retail etc.) are growing faster than many established FMCG and textile brands as these invariably come at cheaper prices or with attractive deals. Social media led influencer marketing has become a major force in increasing sales.
(5) Many successful business models are purely based on this rise in “deal seeking tendency” of customers, e.g, MakeMyTrip, Trivago, Zomato, Policy Bazaar, Paisa Bazaar, etc thrive on such a mindset. Even many political parties have given up commitment to any particular ideology and are willing to go to any extent to get a better “deal”.
If we apply this logic to investing in equities, following trends can be observed in the coming years :
(a) We shall see a sustained decline in buy and hold strategy and higher trading. New forms of strategies like momentum, Factor and multi-asset strategies will find a place in portfolios. New set of investors won’t be afraid to try them and instances of higher volatility will increase substantially due to lack of commitment to one particular investment strategy.
(b) The people who cannot do the frequent churning by themselves might increasingly entrust the job to professional fund managers. Investors who like to do DIY may work with multiple mutual funds, PMS/AIFs, and new-age platforms like Smallcase. The downside could be that portfolios become too complex and eventually investment advisors will be deployed to restructure them.
(c) The research analysts may not be able to come close to estimating the earnings growth due to constant business changes. In past decade, the actual earnings have been anywhere close to the expected earnings. In most cases the actual earnings were 12 to 25% lower than expected earnings. In few exceptional cases (2008, 2016, 2020) these were lower by over 30%. Geopolitics and domestic manufacturing are pushed by most countries in increasing the volatility.