Investors should stay focused, calm, and avoid making impulsive decisions
By David Amarayan (pictured), Founder and CEO, Balchug Capital – We are living through one of the worst economic shocks in history. The volatility is dizzying and the territory is uncharted. The scale of market movements and the amounts of fiscal stimulus governments are applying have never been seen before, and nor have many of the phonemena we are witnessing, such as negative oil prices.
In these extraordinary circumstances, how should investors such as high-net worth individuals, wealth managers and family offices, respond?
At times of turmoil and panic it is extremely difficult to continue to keep a cool head, focus on what’s important and maintain a disciplined approach to investing and risk management. We are bombarded with frightening news and opinions about how things are never going to be the same and how the world order is going to change forever. Panic affects every aspect of our lives – from stock market behaviour to emptying supermarket shelves.
In my opinion most of this is noise caused by uncertainty and fear and the belief that “this time is different”. Well, it’s not. It is not in a sense that the world is not coming to an end. There will be consequences and lessons to be learned, but no matter what triggered this crisis, we will overcome it just like we have every single time before.
Don’t get me wrong – I am not downplaying the seriousness of the situation. We have a severe public health crisis that is being dealt with first and foremost by slowing the spread of the virus, making more testing available, finding the right treatment and eventually creating vaccine and increasing immunity. This will take time, but I am confident that we will be able to do this.
Now more than ever, it is important to stay focused, calm and avoid making impulsive decisions – most often than not they turn out to be wrong. At times like these I remember what late Jack Bogle said: “My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not ‘Don’t stand there, do something,’ but ‘Don’t do something, stand there!’”
The global pandemic has caused a long overdue correction and will most likely push the global economy into a recession. And as every recession, it will bring pain, but also will create opportunities. The financial system is strong. Governments and central banks around world are taking unprecedented fiscal and monetary measures to support the global economy. These efforts will be help us recover faster once we deal with the public health crisis. Hybrid instruments, ETFs and directional algorithms that contributed to the swift broad sell-off, will help us on the way up and the rebound has already been quicker than nearly anyone expected .
As active managers we create our alpha by having several right calls during the year and avoiding serious mistakes. We have entered this crisis with cash on our books and investments that we believe in. So, the paper losses that we have in some of them should not in any way distract or discourage you. We must have the discipline to stand by our investments and the courage to start buying when we feel that the worst is behind us. As John Templeton said: “The time of maximum pessimism is the best time to buy”. This may be one of the great buying opportunities for the next decade.