“Only when the tide goes out do you discover who’s been swimming naked”. Warren Buffet and his memorable pithy quotes have stood the test of time. It’s quite remarkable to watch him and Charlie Munger dissect the market with their learned and earned experience.
It seems to me that Covid has been a tide of sorts, flooding the world, causing unknown damage to people, societies, economies and countries. And yet, after an initial tsunami-like drawback the same tide seems to have lifted prices everywhere, from the all pervasive equity markets, through bond markets via monetary intervention, (at least until recent rate concerns) across property sectors, almost all commodities, and of course through to intangible number thingys generated by computers and stored in clouds.
But what happens when the tide goes out ? Certainly there will be a number of reckonings to be had – probably most significantly the extraordinary debt that has been accumulated by almost every government, national and state, and much of that debt has found its way into markets which have almost certainly become overvalued, but at best will generate lower than normal returns once the current interest rate doldrums swing around into headwinds no matter how slight – a 1% rise from 0.1% is a tenfold increase.
The most significant reckoning, however will be the revelation of things we thought would survive the pandemic that have not. When businesses, economists and market analysts forecast and value activities and assets they rely on an innumerable array of factors that are built into their assumptions. These range from consumers behaving rationally, global supply chains continuing to serve exporters and importers, tariffs remaining stable, and through to the holy grail of continuous growth. Almost all of these assumptions have likely been maintained by those forecasters through the pandemic. It is a rare forecaster who can accurately predict the truly unknown. Surely it is reasonable to expect that some of the fundamentals that we take for granted will be displaced or simply not there when the Covid waters recede?
This is not to say that nothing will work. Just as Australians with flooded homes and businesses will be able to clean, repair and rebuild after the rivers return to their banks, so the world’s economies will need to renew and rebuild parts of the economy once all that cash starts to return to the banks.
Well managed businesses including investment management (IM) firms will be thinking of returning to normal practices in the next few months, and one of those practices will be team building sessions at offsite gatherings. Your next offsite will present a unique opportunity to find out what your team members think will have changed. All businesses need to maintain a commonly held strategy, and for IMs this is the set of Investment Beliefs that the team holds to be true, and which sets the firm apart from competitors. Too often, offsite discussions are unchallenging, feel-good exercises where key individuals seek to impose their views on the team. By carrying out a Beliefs Health Check the brains trust of the IM business can help to ensure that they are prepared for the post Covid cleanup.
If you think this service is warranted at your soon to be revived offsite and you would like to review and revise your Investment Beliefs in a professional manner, using a structured process, contact us and we can tailor a pre-offsite survey, followed by a purpose planned plenary session as part of the team building programme at your conference.