N=1

Summary

• An N of 1 trial is a clinical trial in which a single patient is the case study.
• The past 12 months has been an N of 1 trial.
• What comes next will not be the same.

What do zero(ish) interest rates, a global pandemic, and free (briefly negative) oil prices have in common? A year without opportunity cost. That opportunity cost is the hurdle rate for investing. Without it, value can be ignored. No need for cash flow. One can wait for years for the most aspirational outcomes. Weird things happened from Gamestop (GME) to an all-time high in nearly every type of collectible.

The yield on the 10-year treasury is over 2.6x where it traded last August, a barrel of crude is back to over $62 (err, infinity of last year’s low; actually mathy types might quibble with how many times 62 goes into -38. I’ll just make my point and they’ll enjoy correcting it. Ackchyually away). As for the pandemic, I’m officially in line to get vaxxed in April and hope to unofficially get it well before then.

So what’s next? I’m not sure. Perhaps mean reversion in value underperformance, growth especially tech especially never profitable tech outperformance. Perhaps mean reversion in both the weak economy and strong equity markets. Perhaps a related resurgence in industrials and less patience with speculations that offer vague promises of profits in the latter half of the decade.

But whatever happens next, here’s what I’m most sure of: the past year will be a poor guide to the next. I rather doubt that much of what worked will be what works next. I also doubt that whatever diversification seemed to work will keep working. It may have felt like we were doing lots of things and many or all were working. But we were just doing one thing in lots of different ways and what all worked could also all fail.

I’ve considered three post-pandemic scenarios: 1) tentative reconnection where pandemic stricken communities timidly get back to the world out of fear or having grown accustomed to social distancing and isolation 2) a return to normal that looks much like pre-March 2020 or 3) Catharsis. People throw off their past year and lunge for everything they’ve missed. All signs point to “3)”. Everything is about to change again.