As investors prickle and itch and try to weigh up whether the ongoing avalanche of data, anecdotal reports and corporate murmurings portent nothing more than shrug-of-the-shoulders passing of inflationary mist – and the Federal Reserve do indeed have it all under control – it is no surprise to see the tape turn red. The froth and foam of the SPAC flavoured trade of just a few months back has vanished. Loss making IPOs are now seen as loss making IPOs, less the promised rainmakers of a digital tomorrow. Brokers, too, appear increasingly ruffled; unsure perhaps of where they should encourage their clients to place their chips. The tone from the top seems less sure. Instead of the drum-beating ‘conviction calls’, there appear more ‘scenarios’. Give the client an ‘inflation menu’ and let them decide. It’s their money. For long-term investors, though, a bout of volatility is always welcome. It helps to clear the air and shake out the weak hands. For those Covid winners, those that smashed the lights out in the grip of the 2020 pandemic – everything from food delivery to purveyors of strong bread flour – much talk of late has focused on how they will be left behind as the world opens up and consumers scramble for tickets to a live event. Any live event. With real life people. And yet the stock level implications of the coming long-hot summer of social togetherness, coupled with the skittish whims of retail investors in for a fast buck, do not change the long-term prospects of many franchises. Take Electronic Arts, the video game company, that benefitted hugely from a near worldwide stay-at-home order. Gaming is a structurally growing area of media consumption, supported by demographic tailwinds as gamers age, and continue to game. Like other publishers, EA is monetising the fast-fingered player through in-game purchases, a development that smooths the volatility of a once volatile, console driven top line. Other stocks like Peloton, the cult brand that offers workout bikes for busy, fitness minded types, was another massive lockdown winner. The stock recently flared some gains after management reduced guidance due to the impact of a product recall; but irrespective of the short-term issue, the long-term bull case for the brand remains very much intact. The clamour for ‘value’ as bond yields buckle is only likely to intensify in coming months, but don’t rule out yesterday’s winners, those that still ‘have it’. Form – as any village cricketer will tell you – is temporary. Class is permanent.
The securities mentioned in this blog may be held by funds managed by Majedie Asset Management Ltd.