Reflections as we exit lockdown
Annamaria Koerling recently reflected on the challenges and revelations conditions in the extraordinary first half of 2020 have brought about.
Reflecting on the laissez-faire attitude in much of Europe while China and Asia grappled with the emergence of COVID19, she said “I am generally an optimist. It is part of the human condition, this innate biological optimism, but I like to think I am nevertheless, rational. However, like many of us, when it came to the threats posed by the coronavirus, I realised that I had chosen to ignore what had been staring us in the face face, and fallen into the trap of wanting to believe that bad things could happen elsewhere (in China) but somehow, and totally irrationally, not to us.”
Realisation of how serious this risk was then came with panic. Those who were once laughing at the ludicrous hoarding of toilet paper in China and Hong Kong, suddenly found their supermarket shelves bare of more than just toilet paper. The lack of knowledge of the virus fed the confusion that reigned everywhere, which in turn fed a generalised fear which led to the panic buying.
We all recognise that investing based purely on emotional responses, it is still what many of us do in the grip of those emotions. Those selling solid long term investments in the panic over the economic impact from lockdowns may not find a re-entry point lower than what they sold at. For a period from January 1990 to end February 2020, Schroders’ compared a portfolio that remained fully invested in stocks to one which mechanically switched to cash when volatility was high. The former achieved double the returns of the latter. It underlines a simple lesson that has proven its worth historically, that the best way to survive turbulent times is to ensure your portfolio is sensibly diversified and to do very little until the dust has settled.
Of course, one wonders if history will continue to be an adequate guide for the future. Is this period we’ve just lived through unprecedented? What should investors do when so many economic and business models appear to be under existential threat, or at least, stand at a pivotal point in their strategic direction?
Experienced investor hark back to the tried and test advice for volatile times – to keep calm and take a considered approach with a firm eye on your objectives. The more often you review your portfolio, the more likely you are to make changes and these can lead to a gradual warping of your original investment goals.
Take time to review the real impact likely to emerge from all these changes. They will be significant. Indebted institutions will have a greater challenge than those with balance sheets and cash flows in rude health, some business models will thrive, others will not survive.
Technology has underscored the evolution of how things are produced, serves rendered, commerce is done, how we live our lives. It is clear that many of those trends will be accelerated coming out of this crisis. Those who had been resistant to video calls and interacting virtually will be less resistant today. We have discovered the opportunities and limits of working from home and this will impact how we plan for future needs in office space, equipment seen as essential in the home. The value we place on those who work in essential services and what we see as being essential will change too, as will the value and emphasis we place on travel – especially for leisure.
Organisations with a clear sense of purpose will have a solid framework to navigate these changeable times with. Long term objectives aligned with companies engaged in sustainable activities, conducting themselves with corporate and social responsibility to the environment and their communities should similarly find a clear path forward as the dust settles.
