By: Neel Kulkarni Post Date: November 6th, 2016
Investors, rejoice! A long, scarring campaign season is about to end, and the next US president is imminent. The media will be freed from the shackles of covering politics on a minute-to-minute basis, and a divided nation can go back to finding common ground. Wall Street will be downing some martinis in relief as well – simply because of better clarity on what’s ahead, regardless of who wins: a combination of a tight race and Fed rates over the past month has caused the S&P 500 to lose nearly all of its 2016 gains.
What should investors expect? The general consensus is that a Trump win will catalyze a short, Brexit-like downward shock. In the longer run, infrastructure, defense-oriented and domestic firms would do relatively better. With Hillary, there’s a continuing-as-status-quo feel to the deal – the gains may be capped in the short run, as the focus will shift to more mature subjects such as rate hikes in the face of inflation and tighter labor markets.
In any case, the world moves on. Does a 4-year presidency matter in the face of structural, behavioral trends and demographic changes? In theory, yes – given the power it has to influence them. But are you really going to stop ordering clothes online, binge-watching Netflix, eating quinoa and watching your carbon footprint based on who’s in office? Unlikely. In the long run, rest assured that the fertile ideas-to-capital meeting grounds will continue to make the world a better place by facilitating innovation and wealth generation, regardless of who’s in office. Invest, and rejoice – in general. Not because the election season’s over, but because there’s tons to look forward to.
Through 2016, we’ve elaborated on virtual reality, robotics, space, and healthcare in detail. Today, we’re taking some time to talk about time.
Aha! What was that, you ask?
Time is money. Let’s begin. The concept of spending time productively has driven decision-making for decades – for people and firms alike. However, how does one value time? Scientifically speaking, you could think of it as the opportunity cost of doing something else in that same span. A minute’s cost in traffic could be time away from family, or maybe from a sales deal for work. It’s also relative. The last time you walked from your airport gate to baggage claim, did you feel like you wasted time? Would you have felt far more restless if you had spent the exact same time simply standing at baggage claim, assuming the distance from the gate was shorter? Likely, yes, per a study quoted in Businessweek. Therefore, the perception of value addition matters too.
How does this matter for investors? I believe the emphasis on personal productivity – in other words, using technology to eliminate non-value-adding activities – will be a key driver of the next phase of the internet revolution, through the intersection of artificial intelligence, automation and the Internet of Things. The opportunity cost of time, therefore, will shoot up tremendously. Each minute, in today’s Amazon era, has greater value than before, and companies that help give time back to us stand to gain Wall Street’s attention.
Why? Consider the demographics. The instant gratification mindset of millennials and Generation Z kids is a well-known characteristic; Netflix, Amazon, and messaging apps have all catered to this need – and practically molded it. In doing so, however, routines that classify as ‘unproductive’, such as being stuck in traffic or in a check out line, become all the more taxing due to the opportunity costs involved. That’s where certain firms that tackle the time quotient stand to gain. Think about Starbucks (SBUX). Buying on its app (1 in 5 customers use it) provides valuable minutes back; order on the way, and just pick up it without any counter time. Instacart delivers groceries from local stores so you don’t have to get them. Take it to the next level: Amazon’s (AMZN) Alexa is essentially a virtual assistant that you can quickly mention your shopping list to – no need to even go on the Amazon app to order anymore. Last year, per the WSJ, the company actually filed a patent for ‘anticipatory shipping’ – a way to ship products before customers even think of buying them! Other examples? iRobot (IRBT) has Roombas that vacuum, so you don’t have to; the stock is up nearly 60% over the past year, likely because robots-as-assistants are now on trend – again, for convenience and time. Mobile payment methods shave valuable seconds away from plastic card transactions – which at times take nearly half a minute. Journalism’s no different: Buzzfeed and Wired’s articles are shorter, more opinionated and targeted towards specific audiences; theSkimm, meanwhile, is a fascinating service that delivers key, critical insights in a spunky way to millennials on the go; it has over 4 million subscribers, per Businessweek, since starting in 2012. Ever thought about the hyperloop? The idea proposed by Elon Musk is a fascinating technological frontier, but to practically everyone, what drives the excitement is that travel time may be cut by over 70% between distant destinations.
My point? Convenience is important, but time is critical – and the opportunity cost will, as a result, heavily drive value. The Economist stated it perfectly: Walmart (WMT) taught us the value of money…Amazon (AMZN) has taught us the value of time.
For readers that are nerds, what intrigues me is how this will factor into equity prices. Traditional discounted cash flow models for valuing stocks focus on free cash flows, risks, and growth rates; comparables, meanwhile, are based on earnings, etc. Will opportunity costs start incorporating themselves into cash flows? If Priceline (PCLN) is able to understand your travel ideas – general costs, dates and preferences, it could just book for you when it sees a deal that’s perfect. Can the hours it saved you get quantified into cash flows as well – so you can actually incorporate time into models? It’s worth thinking about.
Will we go back? It’s unlikely. Data supports our behavior: Gallup polls indicate that employed American adults worked approximately 47 hours per week last year, which was 1.5 hours more than a decade ago; we’re also taking far fewer vacation days than international peers. Add to this the substantial debt burden that millennials face, and doing more with less becomes critical. Our average attention span is now 8 seconds, compared to 12 seconds in 2000, per data from Microsoft and Time – mainly due to smartphone usage; the study elaborates that while multi-screeners have a harder time removing irrelevant information, we have absolutely become better multi-taskers. Again, time is money.
On a broader note, such circumstances have also initiated the on-demand economy: with a size of nearly $57 billion, per Harvard Business Review data, it has become a mainstay in today’s asset-light world. Why buy a car if you can just Uber it? Why not sell off your unneeded assets for some extra cash on Etsy? And why not explore more by staying in unused rooms via AirBnb? Per a fascinating study by Cristobal Young, highlighted in the New York Times, free time is essentially a network good – something that derives value from being widely shared. That’s where Instagram, Facebook (FB), Twitter (TWTR), and other social media come into the picture. Add all of these factors together – a connected, time-deprived and technologically enabled generation that loves customization and instant gratification: firms that save us time will do well. The ones above are just a few of them; with artificial intelligence just ramping up, this wave is only beginning.
What it means for you: The holiday season’s on deck. American consumption is a massive driver of the world economy; given healthy personal saving rates, unemployment levels near post-recession lows, stable oil prices and good consumer confidence, we should be in for a solid Q4. Dark clouds, however, remain. After the election, rate decisions, China debt concerns and European bank problems will all rear their heads. Patience is a virtue, and now’s the time to channel it. In the long run, great companies will always prevail – as will those who stick by them. Watch for companies that make great products and provide time back in the process. The value of time will keep increasing, both at home and on Wall Street. Investors should take note.
