Are labor shortages an issue for investors?

Q: Aside from inflation, I keep hearing about labor shortages and what people (or at least the press) have started calling the ‘Great Resignation.’ Is this something to be paying attention to?

A: I’m not going to argue that labor shortages are not a fact of the market right now. Many industries are obviously pressed for labor; and in some instances, these labor shortages are causing serious problems. Healthcare is a good example. The labor shortage in that sector has even started to affect patient care in some cases. That’s significant!

Maybe COVID-19 was a catalyst for rethinking what people want to do and where they want to do it. Certainly, it looks like many companies are having to get creative to figure out how to retain certain employees, especially in service industries. In other areas, companies have been pretty forward-thinking (if they’re well-run, that is) in terms of accommodating workers. That helps to keep workers.

I’ll be honest, however: this just isn’t a question I really look at intensively myself.

Of course, I hear it discussed on conference calls, and I pay attention to those discussions. I always come back to the basic principles of value investing, however; if I can find two or three factors within each company that will drive value over the long-term, I’m less concerned with short-term labor issues.

I’m more interested in the kinds of people companies are bringing in, and I’m more focused on recruitment and retention at the executive level. If key executives are constantly coming in and out, that can be a big red flag in a way high churn among regular workers may or may not be. On the other hand, sometimes turnover may be necessary, especially if you’re involved in a company turnaround. When Larry Culp came into General Electric in 2018, I was pleased that he started making significant changes to the executive leadership team. That was a necessary, albeit painful, step.

Ultimately, there are no hard and fast rules when it comes to these questions. Instead, again, it comes down to looking under the hood. If customers say they love the company – its selection, convenience, and value proposition – and their love for it shows up in huge levels of engagement, then labor challenges may not be an issue for an investor looking for an asset to hold over a long period of time.