COVID-19

In every crisis there are hidden opportunities.

The greatest danger in times of turbulence is not the turbulence, but to act with yesterday’s logic. The greatest and most powerful business survival strategy is the speed of adaptation.

Corporate Darwinism

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change that survives. The same applies to companies. This century, we have seen four major financial crises directly impact the United States economy: the 2000 dot-com bubble, the 2001 September 11th attacks, the 2008 subprime mortgage crisis, and the 2020 covid-19 recession. In all of these crises, there were companies that went under never to come back and there were companies that boomed. What separates the companies that prospered from those that failed are two things: (i) their ability to see the hidden opportunities in the crisis and (ii) their ability to adapt quickly to the changing economic landscape. For us, we saw the covid-19 recession coming in February of 2020 and adjusted our investment model to be prepared to capitalize on the hidden opportunities that were to come in 2020 and now in 2021.

 

Opportunities in Real Estate Asset Acquisitions

The cost of acquisition of wholesale raw land dropped by as much as 19.38% in Mexico’s various markets that we invest in. For us, it was an invitation to buy at a significant discount and on our closing terms. With large parcels, the exit strategy is to divide and resell the resulting smaller tracts at a higher square meter valuation. Smaller parcels were acquired for internal development projects. Across the board, we have capitalized on the weakened economy to lower the cost of wholesale land acquisitions.

 

Opportunities in Index Funds Volatility

Volatility in the market erodes previous stock valuation gains. That is not the case for an index fund ETF investment strategy. In the case of index fund ETFs, volatility makes the price move up and down during the trading day. These small fluctuations in value during the trading day, even variations of 0.10%, add up and give this asset class significant upside value. With contrarian index fund ETFs like SQQQ (NASDAQ Composite) and SPXS (S&P 500), gains are realized even in a downward market where stock valuation plunges.

 

Opportunities in Intellectual Capital

The reduction in the workforce of 2020 was an extraordinary opportunity for companies with a forward-looking vision. With high unemployment rates in both San Francisco and Mexico City, we capitalized on that opportunity by recruiting talent that would otherwise be employed. This allowed us to expand our in-house real estate developments for 2021 and 2022, as well as operations in our index fund portfolio. Mass layoffs from March 2020 onward directly allowed us to recruit talent that would have otherwise not been available so as to expand our intellectual capital base.

 

Opportunities in Lowered Overhead Costs

A significant line-item budget for any business is its physical infrastructure that houses its personnel. The covid-19 recession allowed us to both negotiate leases and acquire new office space at significant discounts from previous asking rates. Through negotiations with service providers and purveyors, operational costs were appreciably lowered. By leveraging our buying power, we dramatically reduced our overhead costs.

 

Opportunities in Technology Applications

Before covid-19: most meetings were face-to-face; business travel was a must; documents needing signatures were overnighted; and physical workspace accounted for up to a third of operational costs. Today: virtually all out of office meetings are through teleconference; business travel is rare; documents are signed electronically; and employees work from home in which they provide the workplace milieu. All of these adaptations allow us to work more efficiently and do more with less. Without the arrival of covid-19, these changes would have been years if not decades out.

 

Going Forward

The ability to quickly evaluate the financial climate in a crisis and adapt to changes is crucial to surviving and exploiting those opportunities. From the expansion of our real estate developments to the volatility in index fund ETFs – the covid-19 recession has been a game-changer in many positive ways. Every crisis brings with it hidden opportunities; it’s just a matter of having the vision to see what others don’t and timely adapt to change.