Paul's Prose February 2021 - The Great Pandemic Economy

Feb 22, 2021 | Paul Monette


The Great Pandemic Economy: Let’s pretend someone wrote a book about a pandemic that took over the world. A pandemic that forced people to stay home for over a year. A pandemic that killed 2.5 million people and counting.

The Great Pandemic Economy

Let’s pretend someone wrote a book about a pandemic that took over the world. A pandemic that forced people to stay home for over a year. A pandemic that killed 2.5 million people and counting. A pandemic that shut down malls and restaurants and a myriad of other businesses. I’m thinking in that book the stock market would not be at record highs. Just my gut feeling.

And yet here we are.

It is truly stunning how smart all of us investment folk are after the fact! We can justify pretty much anything after it already happened!

Of course, money management, contrary to popular belief, is not just about predicting the future. The smartest investment professionals have learned from the past as well. Not only about the ups and downs of the market but the ups and downs of their client’s emotions and true tolerance for risk.

To put this into a little more context – my clients don’t hire me to buy them Bitcoin or GME (GameStop) stock. The skyrocketing rise and the devastating falls of such risky assets is well beyond even the most aggressive investor’s tolerance for risk. Some of them just don’t know it. In fact, the more investors delve into and begin to rely on these “high flyers” the greater the impact this can have on the market at large. That’s a whole other chapter.

The point of this piece is to set realistic expectations for your investments. Recently, I read Michael J Fox’s latest autobiography – I truly enjoy reading his books. In the book he speaks of a term his children taught him, “FOMO”. (Now I do remember hearing this before but it didn’t register at the time – so don’t laugh at me). Fear of Missing Out (FOMO). I am not sure there is a better place for this wonderful acronym than in the world of investments.

Investors (people) are always hearing about someone who made so much money by buying __________ (Fill in the blank – Shopify, Bitcoin, real estate, orange futures…the list goes on).

The key to making more money in any market is simple – take more risk.

The key to preserving money is also simple – follow a disciplined investment strategy and re-balance.

Oil and Commercial Real Estate

A stock’s price is the present value of future cash flows. I remember doing this type of modeling in my university finance courses. It was actually a lot of fun – well if you enjoy that kind of thing – many late nights spent fudging the numbers making your model work. (Oops, did I say “fudging,” I meant “analyzing”).

If that stock price is to grow then you need to have your future cash flows grow. It is difficult to see this happening for certain parts of the real estate market and for oil in general. Don’t get me wrong, oil is going to be around for many years to come but I’m not confident in its ability to grow at anywhere near the rates of past decades.

When it comes to real estate the prediction is a little less certain. However, this pandemic has shifted a lot of our perceptions about the need to shop in malls and the need for an office outside the home. Once again, offices and malls are not going anywhere, however, I do have a difficult time seeing a substantial pattern of “growth” here over the next several years.

Now when it comes to residential real estate that is a whole different kettle of fish! This sector will have a lot to do with the direction of the economy in general, interest rates and immigration patterns – basically I’m saying… I don’t know – but I know analysts who think they do.

Personal Thoughts

  • So apparently there is this thing called ‘High Speed Internet’. Up until this past fall we, in the far deep backwoods of Manotick Station, could only dream of such a concept. Then Elon Musk decides to throw a few billion dollars’ worth of satellites in the sky to offer everyone great internet and all of a sudden Bell decides that it does want my business after all (before I give it to Elon). Regardless, I’m just happy we finally have this internet thing. Did you know you can watch movies on your television without a VCR???? All this is to say that I am truly locked down now like the rest of the world. I am able to work from home. I have to say the first couple of weeks I was skeptical but then the 20 second commute to my office from the coffee machine in my kitchen is started to grow on me! The world is changing and I cannot wait to see all of you again but forgive me if I show up in my pyjamas – out of practice dressing up!!!

  • While so many have been struggling throughout these times I am so fortunate that both my kids in the early stages of their careers are doing great. Brad’s firm was very fortunate to have been taken over by the WoodSource (just down the road from us – we love when he pops home for a quick lunch!) The WoodSource seems to be a wonderful place to work and Brad and his business partner have a beautiful new set up for their brand new CNC Machine and are looking forward to working alongside this great family owned business.

  • Leah has been on a roller coaster ride. She graduated with her Masters just before Christmas and is already on her second job! It is a wonderful time to have graduated in her science field and with 3 years of lab experience in the bank. She was literally pressured into taking a job in the government (they really wanted her) but then she was offered her ‘dream job’ doing clinical research with the Ottawa Hospital. She is looking so forward to it – not to mention she will maintain her 20 minute walk to work!