16 December 2020
In the final piece of this two-part special episode, podcast hosts Dan Mikulskis and Mary Spencer invite more than one guest on the show for the first time– a big welcome to Priscilla Kavule and Philip Boyle!
- Priscilla reflects on the first major market crisis in her career and Phil puts this crisis in the context of others he’s advised through.
- Priscilla – having only ever read about financial crises, the reality is not as expected. Changes happened quickly and it felt essential to update clients frequently, so it has seemed fast paced. Clients appreciated direct advice and interpreting the ‘So what?’ of the data has been important. See her blog here.
- Phil – this year was different to others that he has seen. In most crises something dramatic happens, but this year has felt longer and more drawn out – and we may not have even peaked yet! It remains unclear exactly what the long-term implications are going to be. For markets, it hasn’t been as bad as people thought it would be, but suspect there will be lingering damage. Read more in Phil's blog here.
- Communicating to clients is key.
What’s different this time round?
- Rather than government bailing out banks, they were pumping money to tackle the health-driven crisis so government intervention was viewed quite differently as a result.
- Speed and extent of intervention was greater than expected.
- There has been a disconnect between viewing what’s happening in the world and working out what it means for clients and asset switches, because we haven’t necessarily seen trends in markets.
What could this mean for next time?
- Has the government set a precedent by intervening so much? The form of intervention could change.
- Government intervention is usually through monetary policy, but here you are talking about printing money and giving it to businesses which makes it more direct.
Priscilla’s take on decision making in a crisis
- Whether clients can take advantage of opportunities and find asset classes to help them out is always a challenge. This year has particularly displayed that the opportunities don’t stay for long. Preparation is key so you can move quickly in the moment.
- How can you undergo sensible decision making in a crisis? Training to ensure an understanding of the decision being made in advance is key.
- It’s important to not merely react but instead stay well informed. Knowing what else is out there enables you to be a lot more prepared to make quick decisions.
- Priscilla saw clients exploit this when it came to investments in Opportunistic Credit (see our previous episode with Steve Hodder for more on this asset class).
- Have there been less distressed companies than there should have been in recent years and through the crisis due to government support? Maybe.
- Zombies can catch the flu - read more in this blog here.
Why is Phil falling back in love with infrastructure?
- A lot of interest in generating sufficient income to get through the bad times when value in markets can be volatile. Particularly important for pension schemes to be able to pay pensions.
- Covid-19 has challenged security of income. Companies that haven’t dropped dividends since the war have had to now.
- Essential to really understand what’s behind the payment of an income.
- Understanding liquidity is vital.
Does 2020 change approaches to risk management?
- Covid-19 teaches a valuable lesson that risks being run really can emerge, even though they hadn’t done for years.
- The real expert in the crisis is able to exploit what’s happening around them but this is quite rare. The main focus is avoiding getting burned, having a well-documented approach where you’ve thought what might go wrong and have a plan to combat it.
- Is 2020 the 1-in-20 bad year we’ve always talked about? While some investors/companies have done very badly, and others very well. A binary outcome.
Predictions for 2021
- Priscilla – hopeful for a continued financial recovery. But conscious of high levels of government debt, and unsure how it will be repaid.
- Phil – taste of normality again but expect to still be in crisis by Christmas 2021. Perhaps learn some lessons from overseas investors who’ve had to be creative on their investments already. It's interesting that a number of emerging market countries have not been as badly hit by the virus due to demographics.
Most underappreciated thing about investing
- Phil - 80% of investing is easy. If you just get the big things right, like diversification and liquidity, you don’t have to do a lot work. However the last 20% required much more detail, expertise and effort, and it’s much harder.
- Priscilla – the importance of timely decisions to capture opportunities, as they disappear quickly.
Recommendations podcasts etc
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