TIB 19: Investing During the Zombie Apocalypse

TL; DR - Bad times force businesses and government to try new things that spur economic activity and lead to innovation that forms the foundation for future success. That is why historically the best times to invest in the stock market has been when the world looked like it was falling apart. Unless there’s a zombie apocalypse that happens, chances are high that money invested during bad times will pay off for us in the future.

A little housekeeping

Sorry I have been MIA the last few weeks, but I have been working on a few exciting projects that I can’t wait to share with all of you. I just recorded my first podcast with the co-founder of Halo Top, Doug Bouton (remember, the high protein ice cream that we used to put in all of our protein shakes)? Doug graciously agreed to give half an hour of his time to talk about his journey with Halo Top and his entrepreneurship journey. We explore how he invites and manages risk in his life, and how his mindset and approach helped him with Halo Top.

My goal is to make this the first of a series of podcasts I do this year with people who have inspirational stories to tell. If you know anyone who you think would be interesting for me to talk to, please reach out! Look out for the podcast to drop next week.

An now, on to your regular scheduled programming!

Buy low! Sell High! Easy stuff. 

Everyone knows investing in the stock market is easy. You just have to buy low, sell high and sit on a beach somewhere sipping a Mai Tai. 

Ironically, lots of people buy high and sell low, because when stocks are in a free-fall it feels as though the market will never recover. People are tempted to buy at astronomical prices because that is when it feels safest to buy even though it is the most dangerous. Then when prices correct, the temptation is to sell everything into the fear that grips the market.

Regardless of how it has felt each time the market and the economy has experienced one of these downturns, over the course of the last 100 plus years, the market has always recovered. 

But why has the stock market and the economy always recovered after steep drops?

Because tough times force businesses and governments to embrace new ideas and to innovate. Those innovations and new ideas then help jumpstart the economy, which then drags the economy and the stock market back to good times.

Let’s take a recent example. When the pandemic hit, people feared that our economy would grind to a halt and there would be no economic activity for years. In response to this fear, businesses started trying new ways to sell their products to consumers given the difficulties of social distancing and quarantine.

Companies that were hesitant to embrace e-commerce prior to the pandemic were now forced to sell online. It was the only way they were going to survive.

Restaurants that had never delivered food to people started figuring out how to get their delivery services up and running.

Companies that were not able to innovate went bankrupt, giving their market share (i.e., giving more business) to the strong companies that were able to innovate and survive. This made the strong companies even stronger when the economy recovered.

Finally, when the market and the economy suffers, the government generally steps in and provides support to the economy by either (i) giving money directly to people in the form of fiscal stimulus, which is designed to incentivize people to spend money or (ii) lowering interest rates which is also designed to incentivize people to spend money by lowering borrowing costs.

During the pandemic, the Fed dropped interest rates and provided direct cash payments to citizens to incentivize spending. This helped to keep the economy afloat while the world waited for a return to normalcy.

The mistake that we often make when we find ourselves in an economic downturn is that we assume that the status quo will continue indefinitely. We assume that there will be no response to the crisis that we find ourselves in. That is the only reason to think that bad times will continue in perpetuity.

The reality is quite different. As long as the zombie apocalypse hasn’t happened, the best time to invest is generally when things look the bleakest. Don’t believe me? Let’s look at what happened during the Great Depression.

The Great Depression? Or the Great Innovation?

When I say “Great Depression” what do you think of?

Bread lines? The dust bowl? Abject poverty? The worst economic situation in this country’s history?

What if I told you that the Great Depression was arguably the greatest decade for technological innovation in this country’s history? That doesn’t square with the consensus understanding of how horrible the decade was, but it is true.

The government and business leaders were desperate to try anything to jumpstart the economy. In their desperation, they were willing to try things that would have been unthinkable had the market been soaring with a strong economy.

Let’s list out a few of the notable achievements of the 1930s that formed the foundation for the country’s runaway success for the rest of the century. 

1. Productivity - Total factor productivity (economic output relative to the hours people worked) increased by 40% over the course of the decade. That means that people were 40% more productive without working any more hours by the end of the decade.

2. Transportation - While the 1920s was the decade of manufacturing cars, the 1930s was the decade of road construction. Cars aren’t very useful without roads to drive them on. With the country ready to embrace ambitious government spending, road construction skyrocketed in the 1930s. To highlight the gains made throughout the country, the Pennsylvania turnpike cut travel time from Harrisburg to Pittsburgh by 70%. Now multiply that gain across the entire country and think about how transportation changed forever in the United States.

3. Electricity -  Electricity wasn’t invented in the 1930s, but a huge portion of rural America was literally dragged out of the darkness. During the decade, the electrification of rural America went from 10% to 50%.

4. Education - Finally, because jobs were so hard to find, people stayed in school longer. This meant that people were generally smarter than they had been in decades past, and these smarter people formed the foundation of the American manufacturing engine that was so vital to the war effort that started in 1941.

I’m sure it felt as though the end was near if you lived through the Great Depression, but with the benefit of hindsight we can see the benefits that came out of this otherwise awful decade.

Final Thoughts

While the Great Depression was an unthinkable tragedy on many levels, there was a lot of economic good that came out of it that formed the foundation for the success of the American economy. Coming out of the 1930s America had more efficient factories, more educated workers, and a transportation system that connected the country.

So what does that mean for us as investors?

It is a perfect example of what happens when the market craters and the economy goes into the toilet. At a macro level (i.e., at the government and big business level), trauma forces those in power to try different things to keep businesses and the economy going. They abandon the status quo and start to try all sorts of new things. These new innovations then form the basis for the economic comeback, which usually leads to a market comeback.

Unless there is a zombie apocalypse on the horizon, then the best time to invest is usually when things look the worst.

And if the zombies do arrive? Well then your portfolio will be the least of your worries.

^{Disclaimer: Nothing contained in this website and newsletter should be understood as investment or financial advice. All investment strategies and investments involve the risk of loss. Past performance does not guarantee future results. Everything written and expressed in this newsletter is only the writer's opinion and should not be considered investment advice. Before investing in anything, know your risk profile and if needed, consult a professional. Nothing on this site should ever be considered advice, research, or an invitation to buy or sell any securities. Rohan Muralidhar is not a licensed securities dealer, broker or US Investment adviser or investment bank. This newsletter is not an offer to buy or sell, nor is it a solicitation of an offer to buy or sell or to participate in any advisory services or trading strategy.}