One of my daughters has been looking for a casual job and one came up at PetBarn yesterday packing online boxes. Her response was “I’d better apply before JobKeeper ends and everybody else starts looking for a job”. Clever girl. Getting ahead of the curve. The same applies in the stock market. Assume everything everybody knows is already in the share price. If that’s the case what moves a price is not what everybody knows, its what everybody doesn’t know and the way to make money is not to work out what everybody is getting right, it’s working out what everybody is getting wrong. For instance. If WOW is expected to make a net profit of $1.34bn with its results tomorrow, and it makes $1.34 billion, the share price won’t move. Share prices move on new information and by definition unexpected information, on surprises rather than on expectations. So, Catch 22, your job is to predict the unexpected, the themes and trends that will change everyone's current expectations and in so doing, change share prices. What's in the price: At the moment the current expectation is that we are all going to be sitting at home more, shopping online using BNPL (funded in some cases by government stimulus), buying things for our houses (sofas, electronics, homewares, TVs), having everything delivered, sitting in front of the Internet a lot, not driving as much, not going into the office, not going to restaurants, not going on holiday, not travelling, certainly not travelling internationally, expecting the housing market to fall (until June next year?), that interest rates will be zero forever, that inflation is out of the system, and that any business that is online, from retail to Kogan, Afterpay, Facebook, Netflix and Microsoft, is booming whilst traditional bricks and mortar retail, offices and shopping centres are dead. What’s not in the price, if you can imagine it, is the end of all this. Whether that comes with a vaccine (and the evidence for that is building daily), or it comes with a reduction in death rates (better treatments, ingrained social changes, a healthcare system that is better prepared) it is coming and when it arrives, just like the JobKeeper payments ending and everybody wanting that PetBarn job at the same time, a lot of pretty obvious things are going to be happening that are not priced into the stock market at the moment, and at the same time the current winners will lose their shine. Things like this: The job market will become very busy once JobKeeper comes off. It’ll be much harder to get a job.
  • Everyone will want to go to work (get me out of here!)
  • You won’t be able to get a restaurant booking for weeks.
  • The Merimbula Beach Cabins will be booked out until 2023.
  • Airports will be over-crowded as the whole world tries to take that holiday they missed last year.
  • The housing market will get swamped with delayed activity.
  • You won’t be able to get a booking at a golf course.
  • The school uniform shop won’t have your size.
  • The Basketball tryouts will have three times the number of kids as there are places.
  • There will be a massive activity in the office market as employers rethink big CBD offices.
  • You won’t be able to get a park at Southland.
  • You will have five other people interested in the car you’re looking at.
  • You will not be able to book in for elective surgery until 2025.
  • Your mortgage rate will rise.
  • The petrol price will rise.
  • The stock market will rise.
At the same time:
  • The BNPL stocks will come off the boil.
  • Gold will lose its lustre.
  • Specialty retailers will see their growth plateau.
And you never know maybe, just maybe, we will see a broker upgrade their earnings forecast for a major bank for the first time in five years. Meanwhile the plan of action (subject to daily re-assessment) is to exploit the improvement in virus sentiment and economic optimism (we can already see emerging) through recovery stocks, then move the portfolio into a stable of growth stocks as the recovery theme becomes universal. That will also, as mentioned, involve holding more stocks by number in smaller sizes. And we are not going to try and emulate the benchmark, we are going to put the portfolio on a growth stock footing, which means we will, as always, need to stay on high alert for the next precipitous moment. Marcus will be writing about these recovery stocks in the newsletter model portfolios. If you are not already member CLICK HERE to sign up so you don't miss out on any changes or if you don't know what model portfolios we are talking about, CLICK HERE for a 14-day free trial.

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