How to invest in a tough economy
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How to invest in a tough economy
The economy, to put it lightly, is in a hell of a weird state. We’re still grappling with the fallout from the pandemic in the form of supply chains paying catch-up, and consumers getting reaccustomed to shopping in stores. Many people are heading back to office buildings in major cities, while others have embraced remote work for the foreseeable future.
We still don’t really know how it’s all going to shake out, what changes are going to be permanent, and which will be fleeting. That’s why it’s been so difficult for economists and pundits to make sense of it all — we’re living through unprecedented times, in many respects.
That brings us to last week’s GDP numbers, which showed that the economy contracted by 0.6% during Q2 2022. Following a contraction of 1.6% during Q1, we are staring at two-straight quarters of negative economic growth. That means the U.S. economy is in a recession. Right?
As I’ve written about, defining a “recession” is a bit more involved. Recessions are officially “called” by the National Bureau of Economic Research (NBER). That’s a group of economists who take a look at a range of variables — not simply GDP numbers — to determine if we were in a recession or not. Right now, the biggest hangup is that job growth is still strong. Surprisingly strong. The latest jobs report showed that 528,000 jobs were added in July, and the U3 unemployment rate dropped to 3.5%. Not exactly “recessiony” numbers.
We can all argue about whether or not we’re actually in a recession or not all day.
Some people do, and will.
But it is clear that the economy has hit a bit of a rough patch. So, perhaps whether or not we’re in a recession or not isn’t all that important.
After all, do the conditions on the ground change if we’re not in a recession one day, and “officially” are in one the next?
It’s like turning 18 years old at midnight — you’re technically a child at 10 a.m. the day before your birthday, are you any more of an adult 24 hours later?
Either way, as mentioned, the economy has softened. Companies are cutting jobs, and many corporate earnings reports have been lackluster. People are not feeling all that great, even if some financial vises have let up a bit in recent weeks, like gas prices.
Recession or not, the economy is experiencing a bit of a downturn.
That, obviously, creates some issues (and opportunities) for investors.
Whereas an investment in just about anything between 2010 and 2020 would’ve netted a nice return, it’s become a bit trickier to find the best place to deploy capital — especially as continue to experience high inflation, and deal with the aforementioned supply chain snarls, and more.
I tend to keep a “big picture” view of things, and as such, try to remember that there are always opportunities — even during downturns. Specifically, the world is facing some big, existential problems. Yes, we’ll always need toilet paper and blueberry muffins, but we’re also going to need some new technologies and disruptive business solutions to help us push ahead.
So, where should investors look for returns in the years ahead? Here are a few areas that may be worth focusing on:
We need energy solutions worldwide, something that’s becoming even more apparent as Russia cuts off Europe, and the world becomes increasingly hotter due to climate change. We have renewable and green energy options — at this point, it’s about refining them, and adopting them at a mass scale. This is something that I don’t see going away or slowing down.
With a massive, climate-focused bill set to be signed into law, that will steer nearly $400 billion into renewables and other related technology, this should be an area that investors shouldn’t ignore.
I’m not a huge fan of crypto as an investment. I think there’s a large disconnect between what crypto actually is, and what investors think it is. That said, we’re experiencing a “crypto winter,” with the market having been hit very hard over the past several months. Having spoken to some experts in the field, I do think that it’ll bounce back in a big way in the coming years, which means investors should keep an eye out.
There is a caveat, though: Many cryptocurrencies and crypto projects likely won’t survive, so focus on the projects or coins that are promising and embedded — like Bitcoin or Ethereum, as opposed to joke coins like Doge. Of course, there’s no guarantee that any cryptos will bounce back, and at this point, any “investment” in the space is more of a gamble. But the market’s down, and I do think it’ll bounce back.
I recently spoke with Sol Trujillo — the founder of VC firm L’Attitude Ventures, and a man who served as CEO for several large companies — for a story I wrote for Fast Company. He said this, which is pretty simple, yet poignant:
“...capital should flow to where the growth is.”
Trujillo says that the growth is happening on Main Street, and in many minority communities — the Latino community, in particular.
I think that there are multitudes of small and medium-sized businesses that are promising, providing critical services to their communities, and which may act as “recession-proof” investments if investors can find a way to get involved with them. Think plumbers, farmers, local grocery stores, and many other types of companies. These are services people need all the time, and many people wouldn’t give much thought to investing in them.
So, maybe it’s a walk down Main Street to see what opportunities exist in your own community? While you may not find Apple-like returns, the money will go a lot further towards helping keep small businesses alive and employing your neighbors. Which is something that we should also consider vitally important — maybe as much as finding outsized returns year after year.
Thank you for reading and I am grateful and humbled to be able to learn, grow and invest alongside you at Tuttle Ventures.
Darin Tuttle, CFA
NOTE - This is not investment advice. Do your own due diligence. I make no representation, warranty or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information contained in this report. Any assumptions, opinions and estimates expressed in this report constitute my judgment as of the date thereof and is subject to change without notice. Any projections contained in the report are based on a number of assumptions as to market conditions. There is no guarantee that projected outcomes will be achieved. Unless there is a signed Investment Management or Financial Planning Agreement by both parties, Tuttle Ventures is not acting as your financial advisor or in any fiduciary capacity.