In a world where artificial intelligence (AI) is rapidly transforming industries, some family investors are taking a step back and seeking refuge in old-economy businesses. This intriguing strategy, often overlooked, offers a unique perspective on investment and the future of various sectors.
The Rise of the Anti-AI Trade
The concept of investing in businesses less susceptible to AI disruption, dubbed the 'HALO' trade, is gaining traction. Equity Group Investments, backed by the Zell family, is a prime example, with holdings ranging from a John Deere dealership to a bluefin tuna fishery. What unites these seemingly disparate investments is a focus on longevity and resilience.
A Long-Term Vision
Mark Sotir, president of EGI, emphasizes the importance of a long-term perspective. "If you're thinking out 10 years, you have to choose wisely." This strategy contrasts sharply with traditional private equity firms, which often seek quick returns. Family offices, with their generational focus, naturally align with this approach.
Asset-Heavy Advantages
Asset-heavy businesses, like dealerships and fisheries, offer unique benefits. They provide a stable cash flow, a key consideration in uncertain economic times. Additionally, these businesses often come with geographic moats, limiting competition and providing a certain level of protection.
Tax Benefits and Opportunities
The 'one big beautiful bill' law has further sweetened the deal for family offices. By renewing bonus depreciation, these investors can deduct the full cost of assets in the first year, a significant tax advantage. This proactive tax planning approach is becoming increasingly popular, as families seek to maximize returns after taxes.
A Resilient Investment
Old-economy businesses, while not immune to disruption, offer resilience in certain areas. Take, for instance, the parts and service business in dealerships. It's a necessity, not a luxury, providing a steady income stream. Similarly, fisheries, with their quotas and entry barriers, offer a stable investment opportunity.
A Counterintuitive Strategy
This investment strategy is a fascinating departure from the tech-heavy portfolios often associated with high-net-worth individuals. It raises questions about the future of various industries and the potential pitfalls of overreliance on technology.
In my opinion, this trend highlights the importance of diversification and a thoughtful, long-term approach to investing. It's a reminder that not all successful investments need to be cutting-edge or tech-focused. Sometimes, the most resilient strategies are those that embrace the tried and true.
As we navigate an increasingly digital world, the decision to invest in old-economy businesses is a bold move. It's a strategy that requires a deep understanding of various sectors and a willingness to think beyond the immediate future.
This unique approach to investing offers a refreshing perspective, challenging the conventional wisdom that AI disruption is an inevitable force across all industries.
