This is not investment advice. Do your research before taking a position in any of the securities mentioned in the post below.
Not all downturns are created equal but unless you have been living under a rock you know the themes of the current one are: Quantitative Tightening, Inflation, Rising rates and Poor consumer sentiment
However, it is not always as straightforward choosing net winners from such an environment and sometimes the “net winners” will just be the companies with low drawdowns
Set out below is how I see “obvious themes” (e.g. 1st order thinking) vs. how things have played out (e.g. 2nd order thinking)
Conclusion: So whilst a lot of the general advice around how to survive a downturn is: "avoid discretionary companies, buy inflation-linked assets" the truth is that its more complicated than this. Just as 1st order thinking that "funeral companies would have boomed in COVID-19" is wrong; so to is that argument.
The best performers are the ones which have optionality such as:
Companies that can increase cash reserves (e.g. cut capex, temporarily lower dividend or divest non-core assets at good prices)
Consumer discretionary with pricing power
Fixed asset owners with plenty of debt headroom & "locked up" FUM
Commodity producers are not a sure-fire winner so do your DD
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