Avoid Thematic Investing!

January 23, 2024No Comments

 

Today I’m recording this from Florida, and what I want to talk about is something that is directly associated with being in Florida – thematic investing. [00:00:30] I’m going to start off with a theme of ‘woke’ corporations. We’re going to talk about other themes that corporations can follow, but I want to start off with ‘wokeness’ as a theme. Now, the main concept I want to influence you on here is when we examine a stock, we need to make sure from a fundamental point of view, that the corporation knows its audience.

So, let me give you an example. I’m a technical analyst, and you are [00:01:00] coming here to watch a video to help you invest more efficiently. If I began recording a video on the merits of dark roast versus medium, versus vanilla flavored coffee, and went into an entire video on what’s the best type of coffee, you probably would be turned off because that’s not why you came here.

 

Thematic Investing – DISNEY

 

Same goes [00:01:30] for a corporation. So, when it came to Disney, what happened was, they decided to support the critical race theory agenda that some of the schools were promoting. And Ron DeSantis, Governor of Florida, had decided to remove from school agendas in the state [00:02:00] of Florida. So DeSantis pushed back against Disney supporting this agenda because Disney had no place getting involved in the political aspects of how Ron DeSantis ran the state.

(NOTE: Actually the larger argument Florida had with Disney was their comments on a bill forbidding instruction on sexual orientation and gender identity in kindergarten through Grade 3.

When he pushed back, they pushed back, and at the end of the day, DeSantis leveled some of their tax breaks that they had been receiving as a corporation for many, many years. So it really ended up hurting the company for no good reason, really. Disney went on [00:02:30] further and began producing movies and TV shows and whatnot with a woke agenda. And again, this is about knowing your audience because who goes to Disney’s theme parks? Who watches Disney’s movies? It’s generally ordinary families. And, parents/families were not interested in a woke agenda. Now, again, [00:03:00] if you had been presenting that type of movie to a liberal arts school, the students in the liberal arts school might’ve really liked that agenda. But in this situation, you’re dealing with ordinary families and they were not ready to accept a woke agenda in their movies and theme parks.

So, Disney turned around and began to fire their writers who were writing [00:03:30] the woke scripts for their movies and their theme parks. But my question is: Did Disney wake up too late? You can see on the chart that the stock fell like a brick and really hasn’t shown any signs of basing. So. keep this in mind as an investor. Does the company know their audience?

 

Thematic Investing: Budweiser, Target, Nike and Levi Strauss

s&P 500 chart showing thematic investing drops in stock value

So I’m going to bring up another example of woke corporations, and then we’ll move on to another theme that I want to talk about. [00:04:00] We’re going to talk about four corporations that have been involved in the kind of ‘woke politics’ within their companies and how it worked out for them. So: Budweiser, Target, Nike, and Levi Strauss. The most interesting story of this group is probably Budweiser. Anheuser-Busch is the stock. So what happened with Budweiser was they hired [00:04:30] a transgender actor to do an advertisement for them, and they really forgot who their audience was.

Let me ask: Who drinks “Bud”? It’s usually the good ol’ boys, the blue-collar, hard-working, type of people. Men and women who work hard, come home and want a Bud. It’s not the same audience as say a microbrewery. And, that audience was very turned off by the ad that Budweiser put out. So, to Budweiser’s credit, they caught on quickly to their mistake, and they reversed the policy. They changed their ads back to traditional ads they’ve been involved with for years, and they’ve done quite well since. [00:05:30] You can see that on the chart because Budweiser, after their kind of smash and grab a year or so ago, has returned and is performing in line with the S&P 500.

Can’t say the same about the other three. Target, for example, followed a similar transgender type of woke policy. They brought in a line of clothing that encourages or at least identifies small children as transgender children. [00:06:00] For the 1% of parents who actually support that in their children, they had the other 99% of parents that rejected that policy. And so, Target really didn’t understand their audience much like Budweiser really didn’t understand their audience. Again, perhaps in front of a different audience in a different setting, a company could do very well with that strategy, but not in this setting. Target’s profits went down, people boycotted the company. People boycotted Target for [00:06:30] a long time. Now things seem to be back to normal for the company, but it may be too late because you can see by the stock price – they’ve really not recovered. The other two as well, not so much on the transgender thesis, but hiring. I believe it was Levi Strauss that was hiring not by merit but by agenda, racial or gender qualifications, and not by who’s the most qualified for the job.

This can only be bad for a corporation because [00:07:00] I know in running a company that I want to hire the best people. I don’t want to hire somebody because they have orange hair. I want to hire the best people full stop. So just keep that in mind.

 

Thematic Investing: EV (Electric Vehicles)

 

thematic investing tesla chart

Now I want to talk a little bit about another example of thematic investing, which is the ‘EV theme’. [00:07:30] There’s kind of an electric vehicle theme going on out there, and there’s a meme here I have on a slide. Are EVs going to save the world? Well, some of our more politically ideological politicians out there are trying to promote that thought. And of course, there’s the meme with poster girl, Greta Thornberg, who has been pushing the idea.

But, the reality of EVs versus the ideology of EVs [00:08:00] may differ. So, on the next slide, I’m going to show you a recent article from Seeking Alpha – it was out just a few days ago from when I’m recording this, which is I believe the 15th of January. Seeking Alpha noted that Hertz has reduced their EV count drastically and has gone back to gas-powered cars. And that’s because they weren’t finding them to be as profitable given the costs, the reliability, [00:08:30] and the range, etc., on these vehicles. Consumers have also been rejecting EVs. You can see this in the article below the Seeking Alpha article. It’s by Business Insider and they’re talking how consumers are dumping the cars, not just at used car dealers (which is happening), but also just not buying them because of all the problems.  There’s even been reports of fires and [00:09:00] all this stuff. Without getting into all the problems of EVs, they’re really not as practical as people have made them out to be.

So, let’s take a look at the Tesla chart and you’ll see that the chart has been in a gentle downtrend, but more importantly, even in that downtrend, it’s in an overbought point right now when you look at the momentum indicators at the bottom of the chart. There’s this whole theme of you would think that because governments like Canada are pushing to bring [00:09:30] EVs as the only option to car buyers, this should be a bonus for these guys. But it’s not because the consumers are rejecting these cars. So again, governments can change. Here’s hoping it happens in Canada, but you know my thoughts on that. Either way, things can change and the theme of electric cars may not be as profitable as people think.

Other Themes: Cannabis, Meme Stocks, Peak Oil, and Gold Bugs

 

Let me give you some other examples of thematic investing that have been out [00:10:00] there over the years that I’ve been in the business. We just talked about EVs, but do you remember the cannabis theme? Well, North America was going to legalize marijuana, and therefore everybody was going to be smoking pot and using their products for different purposes and life would be wonderful. The problem is, that producing this stuff is not a very profitable thing. So, anybody who bought cannabis stocks a couple of years ago, is in the hole right now. So, that was a theme despite the beliefs surrounding the products, it really wasn’t a good theme to be involved with. [00:10:30]

Let’s talk about things like the ‘Meme stocks’. Do you remember the ‘Meme stocks’? People were buying stocks that had been hammered and buying them simply because they knew that other people were going to start stepping in and buying the stocks. This may or may not have been a correct assumption, but eventually, these stocks stopped going up. And you know what happened to the meme stocks. Another example of thematic investing is peak oil in the 1990s. [00:11:00] Everybody thought that oil was going to go to $200 a barrel. Well, it never did. And there were books and whatnot written on the subject. And here we are at $70 a barrel today.

Let’s talk about ‘Gold Bugs’. Gold Bugs have been around since I got in the business. Many people believe that we’ll return to the gold standard because of the debt of the governments and whatnot, but that’s not a realistic situation. So, be careful with your thematic view [00:11:30] on Gold. Gold is a great thing to trade. I’m in gold right now, but I don’t have a thematic point of view on it. There are perma bulls and perma bears in the markets. People are perpetually bullish and think the world’s going to hell in a handbasket. You should just buy and hold.

 

thematic investing conclusions

All of these are examples of themes, and I want to finish up by emphasizing that. Check yourself when you get involved with an investment theme and check the audience of the company if they’re thematically following something, whether it’s environmental or ‘woke’ [00:12:00] or whatever policy. Be careful and avoid rash thematic investing because there’s more to it than you see. Thanks for watching.

 

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