While I talked about how I’m investing in individual posts and transactions, I thought it would be good to consolidate my thoughts on how I think 2021 will shape up.
With the Democrats taking power, it creates more certainty on where money will flow. Remember, markets go up in red or blue administrations, its just uncertainty that the markets hate.
While its always difficult to predict the future, we all have to make a best guess as to where to put our money. So here are some trends which I think will continue in 2021 and beyond.
Remote work will stay post-pandemic. Workers will demand it, and businesses have found that it can work. It also reduces cost for both parties, a win-win situation. Remote working doesn’t necessarily have to be 100% work-from-home, most will likely do some kind of mix. I know it doesn’t work for some bosses and industries but its reasonable to expect that a good share of the economy can work remotely.
So what does that mean?
- Office space outlook doesn’t look good since less space is needed
- More spending on computing components and servers
- More spending on software and cybersecurity
Many of my investments are around this theme. Most notably, AMD and Nvidia, which take up over USD $240,000 in my portfolio. Crowdstrike will take up cybersecurity, which I think will be a strong growth area in the next decade. It’s taken in utmost serious in most companies, and they are willing to spend here.
Software plays like Microsoft, Adobe, and Salesforce seem pretty good too. I like investing in software companies given how they can scale and find sales globally. They also tend to hold a lot of cash and are resilient.
E-commerce will keep and grow its gains
People have tried online shopping and most like it. They will keep using it, whether in a pandemic environment or not. When things go back to normal, brick and mortar will reclaim some share, but a lot will be lost permanently. Amazon is big conglomerate and a fixture in American lives. And it has plenty of areas to grow. While some sort of regulation will eventually be put in place, its unlikely that it matters in the long-run. I think Facebook and Twitter would be hurt more than Amazon and Google, as their products are more political and less of a societal good.
Square and Paypal as digital payments also fall under there. But I’m getting a bit more uncomfortable with their growing reliance from cryptocurrencies. I remember when Bitcoin last crashed, Nvidia was dragged down around 50%. When the inevitable pullback occurs, I want to be out. I’m not as concerned with a cryptocurrency crash affecting Nvidia and AMD again as they would still sell out every card they make to gamers instead of bitcoin miners.
Less humans needed
I worked in a corporate strategy environment, and I listened to a lot of senior management chatter. My own takeaway is that human labour is going to be slowly reduced. There’s a lot of reasons behind it, such as manpower restrictions and the growing expectations and expenses of managing people.
It’s also the nature of decision-making. Out of a 100 people in an organisation, perhaps 10 are needed to make decisions. Perhaps another 20 are there to supply the information needed. With better and easier analytical tools, I can see those numbers being cut down by half.
Netflix CEO has said that the best are worth 10 times more than others. This lower costs and headaches. Most companies are happy to pay the 10x producers twice or thrice as much as the average employee, and they’ll save money. Anything that will add capabilities to the rock-stars and reduce reliance on the rank and file will likely accelerate.
Hence, the investments in software companies like Palantir. It consolidates all the data silos within an organisation, helping them to make better decisions. With their work in artificial intelligence (AI), Nvidia, Amazon and Google will continue to shine.
Tesla also falls under here. People make the mistake of thinking Tesla is an automotive company and how its overvalued because its market cap surpasses all the other automakers combined. This is a fallacy, and a very narrow view of what Tesla is. Putting aside that many nations are now mandating electric vehicles, Full Self Driving (FSD) and the battery tech alone are worth trillions. FSD in particular will make transportation safer, cheaper, and better than humans. And it will eventually eliminate hundreds of thousands of jobs.
I know its a cynical point of view, but its likely that the gap between the haves and have-nots will widen even further. Its an era of superstars, with the rest scrambling for a shrinking pie. It’s a natural result of how work has been evolving, and how costs need to be driven down. While I believe this trend has deep moral implications, I cannot see how it would go another way.
Travel will be uncertain
Travel may or may not take off in 2021. Even with a vaccine, I think governments will be cautious about opening up. Most people think that by late 2021, we will be travelling again, including me.
But there are a lot of uncertainties. Even without regulations, travel capacity has been dealt a pretty heavy blow. Hotels have closed, people have left the industry, and airlines stopped buying new planes. It will take time to rehire staff, reopen closed hotels, and get up to speed. It will be a situation of low capacity and high demand when travel reopens. High prices will also keep many people away.
In such an environment, Airbnb will do really well. It’s a far more flexible model, and I can see many people opening their houses, instantly creating rooms. Hotels can’t do this.
The problem with betting on travel is that its obvious. Everyone knows this and is investing ahead of the expected revenue increase. Airbnb is richly valued, and I’m not sure if it will actually go up when the pandemic passes. Sometimes the anticipation is better than the actual results. Pfizer’s share price actually didn’t go up with the vaccine, and is trading around similar values when they announced they had it. I’m not surprised though, its pretty common. People invest on the rumour and sell on the news.
Investing in the travel industry is also vulnerable to an extended pandemic or mutation of the existing virus. It will delay travel and crash the tourism industry again.
Given that I prefer holding stocks that will perform well in both a post-pandemic environment or a repeated one, I will probably pass on investing on travel and a comeback in the related stocks.
Climate change will be a priority for the Biden administration, and I think the best way to play it is through the iShares Global Clean Energy ETF (ICLN). Like genomics, its not easy to determine who would win in this area and I’m not familiar with the names. Best to simply buy them all.
And of course Tesla. I’ve said plenty about this, so I think no need to mention why again.
That’s plenty to invest in for 2021. I’ve already invested in most of what I want, and thinking of adding ICLN. I need to check if my brokerage offers it though.
The trouble is that I lack enough cash to invest in all the opportunities I see. A major downside of retiring is that I don’t have capital infusions that I can count on. I have to sell what I have and re-allocate, and make a guess on which will give me better returns. When in doubt, I usually do nothing.
But investing looks good from here on out. I’m relived that Trump is leaving in less than 2 weeks. Markets stand a good chance of celebrating the stable environment and additional stimulus.
Stay invested folks.