How has Coronavirus affected you?

05022020_Coronavirus

How has Coronavirus affected you?

The Coronavirus has led to big changes in the way many people in China eat, work and move about.  But what about here, in Australia?  How has it affected the way you live, and have you noticed any changes in your workplace or the places you visit?  I’d value your feedback.

I started my career working for Fidelity and had the privilege to interact a couple of times with the legendary investor Peter Lynch. Peter managed Fidelity’s Magellan fund between 1977-1990 and achieved an outstanding 29.2 per cent average annual return during his tenure which was more than double the return of the S&P500 index. The point that Peter put most emphasis on when talking to us junior analysts was “invest in what you know.” As he told us, this has a dual meaning:

  1. If you are an expert in a field, say for example an aeronautical engineer, you have specialised knowledge that you can use to an advantage over other investors, as you are able to spot trends and evaluate news better than people that are less knowledgeable about the subject matter than you are.
  2. The second meaning is that it is possible for investors to draw significant investment conclusions through just observing events that happens in their day-to-day life. Peter famously invested in Dunkin’ Donuts when it was a very small company, not because he read about it in any business newspapers or research reports, but because he went there to buy a coffee and thought their coffee was much better than his normal place.

    He also told us how he got confidence in betting heavily on a company that claimed to have launched a superior panty hose by buying all the women working in Fidelity’s head office a pair and requesting feedback. When the feedback came back universally positive and he compared the price with existing market leading products and found it comparable, he got the confidence to bet heavily on the company and it turned out to be a big success (one of his famous ten-baggers).

I am a believer in both of these meanings. But as you are limited in the number of areas where you can develop really specialised knowledge, the second meaning is something that has more day-to-day applicability to investment decisions. Basically it often pays to keep your eyes open and be observant as what you see in your daily environment will often translate well into what is happening on a macro level.

In today’s blog, I would like to solicit feedback from our readers on day-to-day observations that can have investment implications in connection with the evolving Coronavirus situation.

To kick off, I will contribute with two observations:

  1. On Sunday morning, I rode my bike to the Sydney Fish Market which is something I do quite regularly. The reason I ride instead of drive is twofold – first to get some exercise but also because Sunday mornings are generally extremely busy at the Fish Market and you often struggle to find a parking spot and will have to wait for someone to leave before you can park. That was definitely not the case last Sunday as the car park was less than 1/5th full and there was only one other person in the shop I normally go to. The restaurants that are normally packed like cans of sardines (bad pun intended…) were virtually empty. The demographic that normally frequents Sunday morning breakfast at the Fish Market is predominantly Chinese (both tourists visiting Sydney and locals) and the casual conclusion would be that they are taking the Coronavirus threat very seriously and are avoiding crowded places.
  2. The second observation, although it is second hand, basically confirms this. A friend of mine who lives next to Chatswood and does his grocery shopping there mentioned in passing that he had never ever seen so few people in Coles in Westfields Chatswood on a Sunday evening. The place is normally teeming with people but was virtually deserted when he went last Sunday.

So, what would be the causal conclusions we could draw from this?

  • There could be some weakness to discretionary retail. The trends seen recently have not been good and we have seen a few discretionary retailers issuing disappointing updates like Mosaic Brand (ex. Noni B) and Super Retail Group whose BCF and MacPac brands saw disappointing sales over Christmas (most likely partly caused by the bushfires). On top of this, if we get a widespread trend that people are avoiding crowded places, it will further impact especially discretionary retailers and their landlords. This is (hopefully!) a transitory effect and should not have a large impact on the fundamental value of businesses but the stock market tends to still punish share prices short term until the effects have passed.
  • For non-discretionary retailers, the impact should be lower as people still need to eat and have other necessities. It might even be a positive in terms of volume if people reduce eating out. The issue could though be if people resort to, and get accustomed to, home delivery as this is basically a zero-margin business for Coles and Woolworths so could be dilutive to margins over time.
  • Entertainment businesses like cinemas, restaurants and amusement parks might also see a reduction in foot traffic if people are avoiding crowded places.
  • It could be positive for home delivery food services like Marley Spoon etc.

We should probably be cautious to draw any very firm conclusions from these casual observations yet, as I think the propensity to react to the Coronavirus situation by staying home is (understandably) much higher amongst the Chinese population than in the rest of the population. But if it spreads to other parts of the population it will definitely be worth taking notice.

That’s why I’d love your feedback on any changes you’ve made to your life as a direct result of the Coronavirus, and any changes you’ve seen in the people around you.

I’m looking forward to your feedback!

INVEST WITH MONTGOMERY

Andreas is the joint Portfolio Manager of The Montgomery Fund. Andreas joined from Navigo Partners, a M&A advisory firm in Stockholm, Sweden where he was a Director responsible for origination and execution of Scandinavian projects. Before this, he worked for three years in corporate strategy at Alinta Energy in Sydney.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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15 Comments

    • MarcroEdgo

      Your update is a little tricky to locate – its in the ‘Coronavirus Outbreak’ section.

      Though your analysis is grim this does it does seem to be the case that this situation is getting worse in unexpected ways – aerosol infection dimension seems to be an important aspect that had not previously been seriously considered. I for one will be really annoyed if authorities knew about this, or strongly suspected it, and have not let the public know.

      The seriousness of the cruise ship (transmissiblity) situation is quite unexpected and worrying. I wondering if this ‘super carriers’ idea is a useful idea – I expect there is spectrum based on the person, how sick they are and their personal habits, but there is no such thing as real super carrier.

  1. Clio Hertzberg
    :

    I avoid Haymarket, Circular Quay & the Rocks–Lunar New Year.
    I won’t use the light rail from Glebe to the city.
    I do not visit Chatswood or Marrickville Metro.
    I usually travel to these locations out of peak/ busy times.
    Places I do go I avoid people who show cold like symptoms. I use anti bacterial wipe when holding trolleys, touching door handles, wipe credit cards after use etc.
    Some may say I’m a fanatic–so be it.

    As an active senior in my 70’s my health is far more important than putting myself in potentially vulnerable locations..
    I have friends who spend a lot of time in Haymarket-Darling Harbour & I’m communicating with them by phone & email rather than face to face until I know they have stopped their routine & have the 2 weeks grace period.

    • you do realise that the death rate for the coronavirus ( less than 5% ) has been similar that of the many influenza epidemics we continually have ?
      so you might have to live that way forever if you are that worried….

  2. Brett Edgerton
    :

    Over the last 6 months I have ceased commenting here because I know that I have a tendancy of monopolising or dominating debate, and I am an enormous supporter of Roger and you all, so I stepped back.

    As an outlet for my views I have developed my own site – MacroEdgo.com – to share my progressive and unique thoughts in a way that I hope can add value to others.

    On the coronavirus outbreak I have a rather unique insight. For one, the scientist leading the virological team in Wuhan is a friend of mine and a former colleague when I worked in the French lab where she did her PhD. I hasten to add that while I have been in recent contact, I would not be so disengenuous to seek information. I made contact as a supportive friend seeking to let her know I care about her, thst I am proud of her, and that I wish her and her team well in her enormous task that we all are so dependant on. We owe her and her team an enormous debt of gratitude and I really hope Australians can get their collective heads around that.

    I have wriiten a report entitled “Social Cohesion: The Best Vaccine Against Crises” which is on my site which contains my views on the implications of the outbreak (which are unchanged – evidence since I wrote the report is inline with those views, unfortunately) and today I will update on my own positioning (how I have significantly repositioned my portfolio).

    I am happy to continue to share my views as I think it through.

    What I know for certain is that the world has changed.

    It is up to us whether we extract out of this crisis some positives for humanity – by uniting – or if we allow it (and the divisive elements amongst us) to drive us to be more insular and selfish.

    • Hi Brett,

      I have to say that at least I have missed your comments on this page so would not be unhappy if you would come back!

      I just read the blog post you mentioned. Thank you very much for your insights. It further confirms the view that I have began to form regarding the potential to contain the outbreak. I look forward to reading what investment implications you see.

      I also agree with your sentiment regarding the potential for social tension from this which would be very unfortunate.

      • Thanks Andreas. I have placed my repositioning statement on my site.

        I see at as fairly simple for an individual – invest (and plan) with your head and hope with your heart.

        More complicated for pros I realise – I can suffer my losses in silence.

        Obviously the assymetries are enormous in this situation. Some obvious shorts to be considered, though there may be some extraordinary overt and behind the scenes support, which probably would be justified this time, and obviously a few sectors that will be naturally supported (medical/pharma/selective biotech).

        Going to start to give some thought towards what likely biosecurity will be enacted (and might want to be considered) if threat continues to grow, in relation to communities and business.

        Eg seriously doubt olympics will go ahead this year.

        Cannot leave this comment without returning to my theme of a decade – and I know you guys have done a good job of highlighting it – what a shame that successive governments have played a giant game of pass the housing bubble\household debt parcel rather than undertake the necessary reforms… always our achilles… this and poor social policy has left us so much more vulnerable, and just demonstrates how poorly served we have been in the leadership stakes of this country…

        I could not believe what Jo Hockey said on 7.30 last night – he admitted they were led by focus groups and suggested that is what leadership is these days! Appalling!! Clueless!!!

      • Brett Edgerton
        :

        I have decided to produce a daily update on the coronavirus at https://macroedgo.com/coronavirus-outbreak/

        I am not yelling it from the hills because I do not wish to be (seen to be or actually) non-constructive in the crisis, but I wish to share with thoughtful and sincere people my views in the hope that they can be of assistance.

        While my children are receiving some sombre messages from me, I think they are managing it better than being in the dark and then being surprised in the near future on just how serious are things.

        My optimism level has not lifted. Soon in my reports I will discuss measures that can be taken to improve biosecurity controls for yourself and your family, as well as general preparative measures.

        Above all else, care for and respect each other. We are all in this together. Nobody is immune and viruses do not discriminate. Neither should we.

  3. I worked as an industrial chemist in my first career. The NHMRC devised special projects /chemical analysis and selected a group of companies and research organisations to perform these tasks. The results were sent to the participants and compared against each other. One of the companies was CSL. I thought their results pretty good so when they floated at $2.40 I bought nearly double my usual allocation. That’s why I am retired today.

  4. Similar observations at Costco this week, a haven for Chinese migrants and tourists. Car park was empty, as was the store.

    On the plus side we can finally access good Tasmanian Crayfish as they can’t export the 99% of their catch to China and are dumping them onto the domestic market. Good for locals in the short term, not so much the fishermen. The dangers of hitching your wagon to a single horse as they say.

    Working in aviation, the hit to the industry has been immediately evident. The flow on effects to tourism are already being reported with Victorian hotspots such as the Great Ocean Road and Sovereign Hill sharply impacted.

    We seemed to comfortably dodge the SARS episode a few years back and with this pandemic already eclipsing its impact (on an infection basis) within the first 21 days, it’ll be interesting to see what the eventual fallout will be. In the meantime there’s no point being unprepared and take the advice of a pharmacist friend (not a prepper!) to stock up on Panadol/Nurofen for the kids, as well as Hydralyte in the event the health system starts to buckle under the weight of numbers.

    • Hi Jimbo, thanks for your observations. Tourism related business are probably the most obvious short term impact and the Coronavirous outbreak comes on top of the bush fires which has already badly impacted current tourist trade. What remains to be seen is how long-term the impact will be.

      • Andreas, my weekly Wednesday evening visit to local inner city working class pub revealed no change in numbers – the usual suspects. I think this type of group is not likely too phased by far off reports when a couple of cheap cool beers are awaiting. I will keep an eye on this over the next couple of weeks if this pub becomes empty then we know that the public at large are panicking

      • Walked around inner Melbourne on Friday the 7th in the evening, the place was packed and I must of passed 5000 people. Only one person was wearing a face mask and that was probably because of the smog. Not evident that people have any concerns at present.

  5. Unfortunately most of the real/on the ground messages coming out of China are of course still in Chinese and not widely translated. If one is able to read what is presented, one would not be accused of being extra vigilant about this Coronavirus.

    https://www.epochtimes.com/

    Or, one could simply follow the WHO or the Chinese Government figures and updates……

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