7IM Short Thoughts: Psychologically secured spending
Tough economic times present the true test of resilience when it comes to making profits. But some sectors just have a clear advantage on this, regardless of the backdrop.
Ben reveals all in our latest Short Thoughts video.
Everyone knows that in difficult economic times, equity markets fall. They put the puzzle pieces together. We're spending less, so companies make less profit, which means eventually the share prices fall. But it's not as simple as that, because there are some companies where profits are a little bit more resilient, and that's down to us. Some of our spending is more resilient, even in difficult economic times.
So an obvious example is supermarkets. We still need to eat and we still need to go somewhere to buy our groceries. So profits are a little bit more resilient. But a better example, I think, is healthcare. I'm asthmatic, and regardless of what's going on in the world, I need to buy my asthma inhaler. If I can't afford it, the UK government will buy it for me. The asthma inhaler is getting bought regardless of what's going on in the world.
So when you look at this chart of profits, you can see that throughout recessions, healthcare company earnings are incredibly strong. They grow, in fact. It's a good reminder that not all companies are created equal for all equal economic environments.