When the world goes mad, the wise investor holds cash, keeps cool, and looks beyond the chasm.
Thanks to Brexit, we are now heading into a global recession. Stocks are likely to go straight into a bear market. Everyone is going to overshoot to the downside.
The calm certainties of the recent past - FANG, transaction processing, cloud, XYZ as a service - are not going to do it in the next recovery. They will still be around, but just as these themes were new in 2010, we're going to need new investment themes.
A lot of people will be tempted toward the oil trade. Once oil got up past $50/barrel, there was still no incentive for producers to risk it going back to $30/barrel. Again, it will overshoot, and this is the recession's real precipitant event, the trend that lies beyond the Brexit explosion.
What investors, and even voters, will be looking for is certainty. At first, that seems to lie in the attitudes of the past. Defense stocks like Lockheed Martin (NYSE:LMT), Boeing (NYSE:BA) and Northrop Grumman (NYSE:NOC) are going to look good. We may even see some mergers in that sector to sweeten the honeypot.
But in the end, that's what it is, a honeypot, the kind of thing programmers write to attract viruses and spam they can trace back to their source and deal with. Fools are attracted to the short term, to the gains inside the chasm, but they ignore human nature when they do it.
What human nature says is that people don't like the chasm. What they want is calm, resolute, leadership. Even when that was Richard Nixon - vote like your whole world depended on it. They want happy days again, they want the better angels of our nature. They want to see past the chasm.
So should investors. You should be asking yourself, after the panic starts to subside, what might be the next themes that will make big money? I think General Electric (NYSE:GE), believe it or not, is on to something here. I like the industrial Internet of Things. I also think that six months from now, a lot more people are going to see that the choice between renewables and fossil fuels can't be based on today's price of gas, but the certainty of a fair price over time. GE will, eventually, drive other renewable stocks forward, but those winners will only emerge over time. You don't have to pick them yet.
The last years have proven that while central banks are important, they're not sufficient to create a sustainable recovery. Someone has to buy. Public or private, guns or butter, it makes no difference, someone must create demand or producers of goods and services have no market. On the other side of the chasm, I see a lot of good infrastructure plays. I think much of what Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has bought in the last few years is going to come good.
But this is not the time to debate that. First, you're going to get the very best companies out there that you may not now own at very attractive prices. When the market has washed out - probably in late September or early October - get out your buy lists and pick up some bargains.
Until then, cash is king.
Disclosure: I am/we are long GE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.