A couple of weeks ago, Amazon released Jeff Bezos’ annual letter to shareholders (you can read it here). Whatever you may think of him personally, the fact of the matter is that he is one of the world’s most influential business leaders and Amazon is among the greatest companies on the planet. When people like Jeff Bezos talk, we tend to listen, and many of the things he lays out in this latest letter reflect our approach to money management and how we make decisions and allocate capital.
A clear view on managing the current situation
Like most of the rest of the world, Amazon was caught off guard by the quickness and severity with which the Covid-19 crisis hit, creating major challenges for their business. In the absence of prescience, the hallmark of a great business and great leadership is the ability to react and adapt to a fast-changing landscape, something Amazon has done successfully. From prioritizing delivery of essential items like household goods, groceries and medical supplies to working to improve the safety of the employees making these deliveries happen, Amazon has taken crucial steps to ensure business continuity and their responsibility to customers and shareholders. Coming out of this crisis, they are likely to be positioned stronger than ever as a cornerstone of the US economy.
Unfortunately, we also found ourselves on a similar footing as the global situation quickly deteriorated in the face of this virus, but that has not prevented us from being agile and committing capital for our clients and taking advantages of new opportunities that have presented themselves (like investing in oil tanker companies benefiting from contango) or profiting from short-term price dislocations in attractive assets that suddenly became cheap. At the same time, we have been analyzing all our current holdings and understanding how our investment theses are impacted and what changes need to be made in order to safeguard the wealth of our clients.
While it is painful to see the market value of many of our holdings take a hit as a result of Covid-19, we are still confident in the long-term potential of the assets in our clients’ portfolios and have taken the necessary steps to free up liquidity and allocate capital to places where we see greater price appreciation going forward.
Maintaining a commitment to the future
Despite the uncertainty of the current environment and unanswered questions about how long this will last and what the world may look like coming out of this crisis, Jeff Bezos and Amazon have reiterated their long-term commitments and continue to work on their plan for the future. On the business end, they are continuing to invest in the development of their many services, most notably Amazon Web Services (AWS). Their AWS platform is not only playing an important roles in providing cloud computing for healthcare services, online learning, remote work and government initiatives, but will also play an important role in enabling the new tools being developed to combat the crisis and will likely further benefit from an accelerated shift to the cloud as we exit out of it. At the same time, the company is maintaining its commitment to its ambitious climate goals, like plans to be carbon-neutral by 2040 (beating the target set by the Paris Agreement for 2050) and reaching 100% renewable energy usage for their operations by 2030.
Whether or not you agree with these commitments and the climate science on which they are based, it’s important to realize the direction in which the world is shifting to be able to take advantage of the opportunities this shift may uncover. An old adage in investing is not to put your money on what you think should happen, but instead try to figure out what likely will happen. In this case, our views align.
We have spent time thinking about who the winners may be as the countries and companies around the world continue to invest in and derive more of their energy needs from renewable sources. One of our top picks in this sector is Orsted, the world’s largest offshore wind farm developer and operator. The Danish utility is fully committed to the renewable energy vision, having sold off the last of its oil and gas business in 2017. They have laid out an ambitious capital allocation plan, have a strong pipeline of offshore wind projects and are far and away the leaders in this space with the know-how to be successful for years to come.
We also remain committed to our view that the biotechnology sector will play an increasingly important role in the world and provide very attractive returns to investors. This is a sector that we have been investing in for a while, but it’s amazing to see the amount of innovation occurring right now as scientists work to develop a vaccine for the virus and treatments for those who are most endangered by it. And while these are the challenges gaining the most attention, there are many other interesting things happening in space. One of these is the continuing advancement of gene editing technologies to combat diseases, where companies like Crispr Therapeutics are leading these developments. The company has developed a CRISPR/Cas9 gene-editing platform and is using to develop therapies for cancer, diabetes and other diseases. Another company on our radar is Veeva Systems, a life sciences cloud technology platform that is focused on improving the management of clinical trial data and enabling new drugs and treatments to be introduced to the market more quickly. These are just a couple of the many interesting companies in this space, and we firmly believe that the Covid-19 crisis will only accelerate investment and innovation in biotechnology.
At the same time, we are completely focused on how the shifting macroeconomic environment and the unprecedented monetary policy decisions being made to combat the crisis will impact the future of the global economy. Ultimately, the stimulus that is being generated will flow to the companies that are in the greatest position to generate profits in the future. Bezos knows this, and we are committed to doing the same for our clients.