We can rarely say that we are in unchartered territory, but this is one such instance where it rings true. There is huge uncertainty and nervousness around caused by a pandemic that is sweeping the globe with dispassionate ease.
The rhetoric from those in authority remains about containment rather than cure, and understandably it doesn’t breed confidence.
The short and long term ramifications on global trade and corporate earnings remain horribly opaque whilst momentum in markets appears immune to central bank intervention.
It’s an uncomfortable backdrop from which we have to perform.
However we recognise is that we cannot direct the wind, but we can adjust the sails.
This saves a lot of time and energy focusing on matters beyond our control, leaving us with time to focus on what we do know with a degree of confidence:
1) The spread of Covid-19 will not be linear. We will see ‘peak Coronavirus’ and markets will return to what we have come to deem normal. A setback in markets was overdue, and although what we have witnessed is nothing short of brutal, history will tell us it’s not unhealthy over the long term.
2) The level of correlation within equity markets will breakdown. Quality companies will become stronger and more dominant and the zombie community will fall away. Quality doesn’t have to be ‘growth’ nor does it have to be ‘value’; quality comes in all shapes, but a common characteristic is little reliance on cheap funding. The character of the market post event will be healthier than pre.
3) Buying equities close to intrinsic value is a value adding strategy. Forward earnings being revised down on a daily basis make putting a line in the sand troublesome and the market is not 25% ‘cheaper’ than it was as earnings will collapse. However, we believe now is the time to be bold rather than hide; bold does not mean reckless, it’s about having conviction in one’s judgement.
4) It’s not meant to be easy. It’s a difficult time to responsible for others money; whether one is an adviser or a discretionary fund manager. It pains to see markets lurching downwards and displaying turbulence that is unheralded. However, the emotions associated with ‘running money’ should never diminish; when one becomes desensitised, it’s time to get out.
Unquestionably, there is great uncertainty in play right now and it makes the day job particularly difficult.
We know we will not get every decision we make right; when to put money to work or when to take money off the table, but taking a step back from the reactional Bloomberg screens and focussing on what we have collectively learnt over years, we have found our little sanctuary in a world of flux. A sanctuary that permits us the environment to focus on what we can control for the benefit of our clients.
That is all that matters, our clients.
We expect to come through this period bruised, but certainly not beaten. It’ll be ok.
Download: Insight – James Sullivan, 13032020
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