This is a rough, very rough, cut - I'd normally mull this sort of thing for days, but I wanted to get it out there and keep it front of mind... .. .
As my eyelids got heavy last night a theme came to mind.. Inspired by all those years investing in miners (yes, the sort that dig great holes deep into the earth); I thought about 'stoping' {pronounced with a big 'O'}. Probably one of my best investments in the industry came from an entity that had just finished a great deal of stoping.
Here they had excavated a deep spiral and wherever that spiral intersected the vein of gold ore they would dig a horizontal tunnel into that vein - one tunnel beneath the one above and so on. When the work was done, and we're talking tremendous time, resources, energy, capital, etc. going into this stoping work - that was when you got to collect the fruits of your labor. Pretty much dropping the ceiling of one tunnel onto the next; then just pulling (mucking) the ore out - the miner's equivalent of sowing and reaping I suppose.
What made that story work when that is ostensibly the modus operandi for underground mining - investors had (for whatever reason) missed the shift that was imminent.. The value of what had been undertaken and accomplished was too heavily discounted.
Ok, so what is the idea? The last few years have been anomalous, right, and they led to some interesting capital allocation decisions.. People capitulated on rates, after a decade plus of NIRP/ZIRP, and went big with their capital expenditures - both planned and implemented.
In many (if not most) cases this was overdone.. What interests me are those entities that expanded and now find themselves with excess capacity or increased capabilities; but I want the sort of capacity that doesn't have high fixed costs while it idles.. The type that will remain relevant, I'm interested in the entity that will be able to swiftly leverage all this stoping work and pull out the gold when prices (the economic environment) make it most worthwhile.
Now this could be tangible or intangible (e.g., a new production line or intellectual property), whatever it may be the key is that it opens the door to *operational leverage*.
Caveats abound as you're likely going to need to account for competition depending on the sector or industry you end up looking at; the general business environment has also changed with higher rates and what seems like a clear trend back towards larger governments, etc..
While equities have basically infinite duration there is an air of lower duration to this idea - now, will I be able to identify any.. <shrug> Tricky bit, even if you find one or amazingly multiple, you also need management to not drop this optionality nor just outright miss on it.
My search will begin with two spaces I find most comfort in through cycles: healthcare and industrials, the fields which so truly encompass the progress of humanity..
This post *will* be updated as the search plays out :)
br. -john
p.s. there's been a lingering thought on 'predicting the future versus being quick to synthesize the present' ..
The big thought: It's a fool's errand to attempt prediction of the future - rather we ought to hone our skills that we may quickly synthesize, and act upon, the present..
That said, you can likely push the 'present' out a bit further depending on the scale (breadth, depth, grasp, nature, etc.) of the matter you are analyzing .. Talking about a full on societal changing paradigm shift versus some more nuanced cyclical move - wholly different or perhaps merely so, regardless be mindful..
Now, this leans into a notion I've had of late, namely that my contrarian nature often has me looking past the layups (thinking too many steps ahead); shaking that conservative (overly skeptical perhaps) nature a bit and basically leveraging momentum a bit more - that is where I am landing.
An edge might arise when an investor has a less acute view of the present, realizing that it is merely some fuzzy bound between past and future..