Investing in the “new” economy. What’s driving the change?
Most macro economists or portfolio strategists use models to predict future economic activity. If you look at the economy as if it were a pie, strategists look at slices of the pie and try to extrapolate how the pieces would fit together to see if the pie is growing.
One of the problems economists are facing is that the “new” economy doesn’t follow some of the typical data points and interconnections. Some businesses and industries are contracting while others are becoming larger and larger slices of the pie.
Small businesses innovation
Historically we’ve been told that small businesses drive economic activity. This has never been truer than it is today despite the growth of “mega” companies. For an example of what’s happening with small businesses, listen to the Square (SQ-$66) conference call.
Square’s clients typically have less than $200,000 in annual revenue. Square’s revenue in the second quarter grew 46% year over year and is expected to grow over 30% per year for the foreseeable future because it enables small businesses to grow their business. Businesses that are using advanced transaction, payroll and accounting processing are growing much faster than companies that haven’t evolved, everything else equal.
Transporting goods is an important economic component. It is revenue to railroads and trucking companies and an expense to their customers and the end consumers. Evolution in this industry changes the factors in our country’s economic framework. Consider railroads and trucking. Railroads might be a quasi-monopoly in this country, but trucking is not. Trucking reflects the marginal shipping of goods and can give investors a true perspective on economic activity. By listening to the WEX (WEX-$200) and Fleetcor Technologies (FLT-
295) conference calls, you’ll hear examples of what we’re seeing. These companies provide payment processing and control, information management, transaction data, and analysis tools to trucking fleets of all sizes. Reducing the costs to trucking fleets, shippers and eventually end consumers is a growing business for these two companies and shifts the relationships of these industries within the whole economic pie in America.
Digital payment processing
Digital payment processing is revolutionizing how we do business worldwide. Credit cards and electronic payment systems like PayPal, Apple Pay, etc. are expanding the reach of businesses large and small. If you want to gauge what the consumer is doing, listen to the VISA (V-$179) and MasterCard (MA-$277) conference calls.
Although the current economy isn’t quite fitting into the standard mold of the past, we believe these current trends show that the economy is healthy as evidenced by what is going on with those five companies.
Thomas G. Plumb is the founding principal of Wisconsin Capital Management, LLC (formerly Thompson Plumb & Associates), which began in 1984. In addition to his roles with the Funds, Tom maintains an ownership interest in and serves as the president of SVA Plumb Financial, LLC, an affiliated entity.
Thomas G. Plumb is the founding principal of Wisconsin Capital Management, LLC (formerly Thompson Plumb & Associates), which began in 1984. In addition to his roles with the Funds, Tom maintains an ownership interest in and serves as the president of SVA Plumb Financial, LLC, an affiliated entity. Tom formerly was the lead portfolio manager of Dreyfus Premier Balanced Opportunity Fund. He earned a bachelor of business administration from the University of Wisconsin-Madison in 1975, is a member of the Madison Investment Management Society and holds the Chartered Financial Analyst designation.
Opinions expressed are those of the speaker as of August 15, 2019, and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
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The Plumb Balanced Fund will invest in debt securities, which typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities.