June 20, 2022
The Thursday evening “Pizza Ride” is an Atlanta in-town group bike ride that starts in Avondale Estates and heads east to Stone Mountain Park. The ride got its name because it starts at the location of the old Avondale Pizzeria. It’s a moderate to strenuous-paced ride of about 40 miles. On some evenings, there can be 60-70 riders trying to be first to the big oak tree. As Atlanta Peloton notes, the “vibe brings big crowds and much fun.”
I always like to see how far I can get before being “dropped” by the younger, fitter riders. The first part of Pizza is flat and swift, but the peloton’s slipstream will pull you along if you hide and “draft” in the back. I can normally hang on until the entrance to the park when the riders in front turn on the gas. Suddenly I am history. But, even after I drop back, my steady pace allows me to catch up with those who sprinted too soon.
Riding Pizza reminds me of investing since the Great Recession. Ten years ago, investing seemed more straightforward. Asset values were lower, and risk premiums were higher. The Fed provided liquidity when needed. Globalism enabled the generation of additional capacity, thus helping support low inflation. There were, of course, some bumps, but the environment was generally very favorable to investors. All you had to do was get on the investing bus because most asset values lifted during the prolonged expansion.
We are now in a “reset” period with falling stock and bond prices. Some would say this is leading to healthy repricing from incredibly lofty levels last fall. This reset period is already providing greater volatility as the marketplace adjusts to factors such as high inflation and a more hawkish Fed. Diversification has always been an important tenet of a long-term successful investment framework. Overly concentrated technology or crypto investors are now learning an important lesson. The lead riders who “break the wind” often tire and fall behind those riders who have been drafting and conserving their energy.
While the ride in the markets can make your heart race, we are starting to see better value. The average stock multiple is falling towards its 25-year average and 2-year treasuries hit 3.45% last Tuesday. Increases in interest rates are now starting to hit the pocketbook of borrowers, especially debt-financed real estate buyers. Real estate transactions are down 15% from last year and we are starting to hear of buyers having more difficulty lining up financing to close deals. Perhaps this reset period will make for better investment opportunities as risk premiums adjust upwards.
Each week I hope to be able to hang on a little longer with the Pizza peloton. I know the ride will always be strenuous with predictable ups and downs, but I never give up and just keep pedaling. Like Journey’s famous song, ‘Don’t Stop Believin,’ set your goals and stay focused when the going gets tough.