Exogenous shocks, firm position, market reaction.

Strategy 101 exhorts managers to keep tabs of both the proximate and the task environment and to be on the look out for events that may threaten or present opportunities to grow the firm’s operating performance, improve Return on Invested Capital (ROIC) or widen the spread between ROIC and cost of capital.  In this regard, time, effort and money was not spared. Most managers and owners have a firm grasp of these drivers as well as their broad behavioural patterns or plots and have built their models on this plots. Nothing however, seems to have prepared most to make sense of and deal effectively, at least in the short term, with multiple exogenous shocks (health crisis, economic policy responses to the health crisis combined with technological disruption, environmental and social challenges) either acting in concert, feeding off one another or working parallel one another.

Like most things in life, the COVID-19 induced health crisis and associated policy responses presented some industry sectors, industry groups, sub industries, categories and stocks/firms with tailwinds and others with headwinds. The industrials sector, specifically, the airline sub industry as well as consumer discretionary sector, specifically, casinos and gaming, hotels, resorts and cruise lines and leisure facilities, are examples of the former, whilst health care, consumer staples and some sub industries within communication services are examples of the latter. Firms within these sectors or sub industries are exposed to the same level and intensity of of headwinds or tailwinds, despite this, stock markets assign different opinions and place different bets to firms facing the same headwinds or tailwinds.

To illustrate the point, all casino and gaming firms could not trade due to lock downs instituted in different geographies and post lock-downs, they will be expected to institute some health safety measures and social distancing measures to protect clients and workers.