Seeking Crystal Clarity not Crystallisation
At times like these, it is hard not to be emotional and that usually involves an urge to sell after risk markets have lurched downwards again after already suffering substantial losses – all in the space of a month.
Experience is a good thing and personally, I can remember October 1987 and ‘Black Friday’ when the associated non-financial disaster was a storm so fierce that getting to work was difficult as trees were down everywhere, blocking train lines and roads. The town of Sevenoaks was left with just one. In the nineties, we had Lamont’s lament over Sterling and the EMU. Subsequently, we endured the dotcom boom/bust, 9/11 and the Great Recession which followed 2008/9’ financial crisis. As well as I remember October 1987, I can recall March 2009 and the turning point for the crisis. But, enough of the history lesson. The point is all crises were followed by recoveries. I’m not saying we are where we were almost exactly 11 years ago and the uncertainty of when things get better is unnerving many. I would however caution against selling out of risk assets to improve one’s mood.
Unless you need the money within the next year, crystallising a loss makes it hard to get back in at a later stage, at a lower level – many try, most fail.
Our style of investing is to avoid investments that invest in airlines, banks, oil companies, high street and shopping mall retail in favour of looking at exposures that focus on quality business with strong cashflows, balance sheets and low to no debt. Our preference is to invest thematically which means investing in long term drivers of returns such as sustainability, nutrition, the digital economy, healthcare and infrastructure. Those themes may get caught up in the general downdraft currently surrounding us but should be the winners when this storm passes – as it will.
Of course, we cannot pinpoint when that will be and we don’t know of anyone else who can either. It’s the uncertainty and not knowing how long this and the resultant recession will last that is unnerving financial markets but getting out now to either sit in cash or get back in lower down? That’s a really tough call. Not selling, not crystallising might feel awkward but experience tells us, it is an easier call in the long run.
As a family-owned business, TBAM are robust in our team strength, operational resilience, business continuity and possess a strong balance sheet. As investors in our funds, we have an alignment with our investors so we’re all in this together.
Would you sell equities here? See next page.
Source: Charles Ekins, Ekins Guinness