You cannot escape the responsibility of tomorrow by evading it today

May 21, 2020

You cannot escape the responsibility of tomorrow by evading it today

In 1864, in a letter to then-Secretary of War Edward Stanton, President Abraham Lincoln wrote one of my favorite quotes, “You cannot escape the responsibility of tomorrow by evading it today.” In all our lives, we have made sacrifices today for a brighter tomorrow.  Some drove old cars; some never went on vacations, and some took second jobs. Why? We did it because we knew saving meant in the future we could buy that house in the better school district or our children could go to college. In present times, I believe Lincoln’s words to say we must continue to do the smart things around social distancing and keeping our vulnerable people safe to make sure our and their futures are better and safer.

As you have heard me say before, no one knows how the future will play out, but we should still look ahead and think through the consequences of what is happening.

We believe that our society and our economy are experiencing a massive paradigm shift.

Here are just a few things that we see changing as a result of what is going on now:

Social Support: 36.5 million Americans have become unemployed in two months, and the effects are rippling through families, communities, and the economy. The government has responded with trillions of stimulus dollars to individuals and businesses. More stimulus is most likely to come. What does this mean for our society and for corporate balance sheets? Will we permanently expand the social safety net, and how does that effect private industry?

Work: Thrown into the most massive work-from-home experiment in history, more workers and employers will transition to remote work post-pandemic. It is now socially acceptable to work remotely. This shift in work has significant, lasting implications. What places will be a draw if workers can live anywhere and what will happen to REITs that specialize in cities that experience an exodus?  What happens to staffing firms when employers can pick a nationwide (or global) workforce? Will those who must physically show up demand different compensation, and how will consulting services now be delivered? What IT solutions will most effectively deliver work-from-home capabilities with the best security?

Education: Students, parents, schools, and universities are being forced to re-evaluate the definition of education (and its price tag) now that the on-campus experience has gone online. What is missing if you attend from home, and what does that mean for firms that specialize in providing off-campus residences? How much should education cost online versus in-person, and what does that mean for firms that own private student loans? What business models will best provide alternatives to a traditional four-year degree?

Shopping & Entertainment: Brick-and-mortar retailers are unlikely to recover quickly from the body blow dealt by pandemic lockdowns. Online shopping, grocery delivery, and digital services may finally overtake offline channels. What will retail P&Ls and corporate real estate balance sheets look like when it is easier (and maybe safer) to eat, shop, and watch at home?

Though it appears that the broad stock market is trying to move past the pandemic, we are not celebrating wholesale just yet. Why?

Much has changed in the world, and we are still playing out first-order effects. More consequences, both good and bad, may be on the horizon.

“What are the second- and third-order consequences of this?”  is a question big thinkers like Ray Dalio & Howard Marks (two investing legends) ask about complex scenarios.

Here is what they mean (In plain words and of course, my analogies):

First-order thinking is fast and simple: B is the logical outcome of event A.  Michael is hungry, so he is going to eat a chocolate bar, which is an example of first-order thinking.

But then what? What happens as a consequence of B? (Does Michael gain weight from eating a lot of Milky Ways?)

And what happens as a result of that? (Does his recent weight gain cause his sugar levels to go up?) And what is the follow-on effect of that? (Does he now need daily medication, insulin injections, or a glucose monitor because of these higher sugar levels?)

Second-order thinking is about interactions and complex systems. It is slow and hard (but mastering it can put us steps ahead of the crowd).

Understanding the new world that is growing out of the pandemic requires thinking through these higher-order consequences and how it affects the companies that you own.

How can we adapt? How can we still pursue our goals (investment and lifestyle) in a changed world?

We think it through with humility and an open mind. A mind not fogged by fear.

We hone our second order thinking skills by asking: what could happen? And then what? How likely is it that I am right? What could happen if I am wrong? How do I position myself and my family?

We will do it together.

COVID-19 is going to be with us for the rest of 2020 and possibly into 2021. So as a firm, we too are adapting.

At Landsberg Bennett, it means we will hold virtual meetings, limit office visits through June and work with what makes people most comfortable over the summer. For those that want to come in, we meet in our larger conference room and maintain 6 feet of social distance. For those that have more concerns with their immune system, we work with them via video conferencing to make sure they are kept safe and informed but out of harm’s way as much as possible.

It also means big changes in all our personal lives with children & grandchildren studying online through the end of the school year and possibly into the next.

Many of your/my much-anticipated summer vacations to Europe or back up north to see family are either canceled or still pending. The key for all our mental well-being is to not think of what we have lost, but for us, is to enjoy the things we can do and keep that in the proper perspective. Seeing some of the beauty that surrounds us by taking walks, biking, or boating are great ways to do just that.

We will get through this, and we will all be better and more appreciative when we do.