As I write this note, we are all facing uncertainty and working hard to determine how the current pandemic will impact our economy. I am not a medical professional so I will not comment on the health aspects of this situation, but I do believe there are three points we must consider as we attempt to manage our portfolio for the future:
1. This is serious
We must plan, prepare, and execute. We must address the situation as it evolves and be ready to respond because things are changing quickly, so we also must move fast to manage those changes. We are working with our portfolio companies to consider all options with employees, vendors, and capital sources. No matter what, we should understand the gravity of the moment so that we do not miss out on any opportunities that arise, such as the recent CARES act, to help our businesses prepare to grow again in the future.
2. This time is different
Thinking back to 2008, we all remember that Monday morning collapse of Lehman Brothers. The resulting recession was painful and led to many layoffs like we are seeing now, but we must remember that by the fall of 2008 asset values had been sliding for many months prior to the final shock, so the market was already on shaky ground and was not able to withstand the impact. Prior to the current pandemic, by contrast, overall markets and indicators were strong, with high stock values and very low unemployment. We cannot know how this will play out, but we must recognize that this market environment is fundamentally different from 2008, and thus businesses with strong fundamentals will be valuable as the economy reopens.
3. There is opportunity in crisis
I am not suggesting any of us take advantage of the pain others may be experiencing right now, but we are currently considering certain opportunities to invest in industries we already had been researching. There are good business models that will succeed as demand returns, and for these possibilities we should be investing into the downturn so we can prepare for the rebound while many others are standing still. We will continue to find and partner with good businesses now so we can together capture share once things start growing again.
There is much uncertainty enveloping us today and the world outside our windows today seems much more still than it did only a few weeks ago. Regardless we must resolve to move forward, and we at Pareto are using these brief points to help guide our path forward as we all work to embrace our communities together.
Stay safe everyone and thank you.