Markets hate uncertainty. In the first quarter of 2020, global markets have digested two shocks: COVID-19 and a sudden drop of more than 50% in the price of crude oil. Predictably, equity markets have not been kind to these two surprises.
As we look forward to the remainder 2020, we believe equity markets will now wrestle with the duration and severity of the coronavirus and the impact it will have on the global economy, the supply and demand outlook for oil, and governments’ reaction to these events.
Sudden shocks, steep declines and unexpected market events are unsettling and uncomfortable. They are also very normal. In my career as an investor, they have happened twice, in 1999-2000 and 2007-2008. If the decline is large and strong enough, it gets its own name, such as, in the cases mentioned above, “the dot-com bubble” and “the global financial crisis.”
Almost by definition, each one of these events needs to be sudden, uncertain and unprecedented—defined as “never done or known before.” For example, Donald Trump winning the US presidential race in 2016 was, by most accounts, a surprise; however, it was well considered, and we certainly have had surprising US presidential election results in the past. The dual shock of COVID-19 and the sudden drop in the price of oil, simultaneously, is unprecedented.
What makes humans unique within the animal kingdom, among many features, is our ability to gather in networks much greater than ourselves. Nations, religion, governments and the global economy are all examples of this. The world economy wants to get back to work. Workers want to get back to work. Governments want to get back to work. Therefore, I believe it’s reasonable to assume we will get back to work.
While one can argue the crisis we are in now is unprecedented, it is normal for equity markets and the global economy to experience shocks. Franklin DynaTech Fund has been investing in innovation for more than 50 years, and we have a process in place that helps us remove fear, panic, individual stock bias, and which we think helps us make good decisions in times of crisis. This process is the output of managing money through multiple past unprecedented events and viewing each crisis as an opportunity to refine, improve and learn from the previous crisis. Of course, we have enacted that process during this time, and we have executed on our predetermined playbook.
As followers of our investment philosophy know, we have organized this period of accelerating investment into five themes: disruptive commerce, genomic discovery, intelligent machines, new finance and exponential data.
In this period of crisis, we believe each one of the above themes will play a part.
Global e-commerce: We have already seen a good uptick in the usage of e-commerce as consumers avoid physical contact at stores.
Genetic breakthroughs: COVID-19 is analyzed at the genetic level to test and vaccinate our population against the virus.
Intelligent machines: Automation will be leaned upon to produce and deliver goods with minimal human contact.
New finance: Payment providers will continue to reduce payment friction and physical contact in traditional commerce.
Exponential data: The reliability and speed of delivery of data has helped businesses to continue to function efficiently through video conferencing and work collaboration, while consumers are entertaining themselves, at home, with over-the-top entertainment programming, socializing and video games.
We invest in innovation. We are optimists. We live at a time of accelerating economic change due to accelerating innovation. We believe in our government and institutions and or collective ability to solve this crisis. We have new tools in our ability to fight a pandemic that we have never had in our history. Finally, we have often observed that it’s a poor investment to invest against human ingenuity. We will press forward with the belief that we will come out of this process stronger and better prepared for the future.
We understand these times are uncomfortable and stressful. All of us on the team wish you and your family safety and health during these unprecedented times.
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Franklin DynaTech Fund
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