| Areté Quarterly Q120 |
Business update
An eventful quarter in the markets also shifted the perspective of the business landscape. Just last quarter I complained that monetary policy had served to “almost eradicate any perception of risk in markets.”
After the turbulence in the quarter, I’m not worried about lack of risk perception any more! The severe selloff in March re-acquainted many investors with what it feels like to have their portfolio down on the order of 30%. Many felt the kind of pain that can serve as an impetus to do things a different way.
For better and worse, many people do not appreciate risk until it hits. Insurance is always much more costly just after a hurricane than just before and it is no different with investments.
The good news, then, is that in a space of just a few weeks the types of “insurance” that are endemic to Areté’s business mission – like research, risk management and strategic perspective - have become more valuable and have acquired a broader audience.
The explicit recognition of risk is a necessary, but not a sufficient, condition for success, however. What I have observed in stock prices and market action in the first several days of April is that the selloff served as a good wake up call for investors, but not a loud call to action. It seems investors are being slow to fully incorporate the depth and breadth of economic harm that is being caused.
My base expectation is that investors have become fairly complacent after more than ten years of rising markets, with only periodic and transient episodes of adversity. The public policy playbook has been to come riding to the rescue any time it looks like there might be a serious problem and prices could fall a lot.
Some investors will be stuck on autopilot and continue assuming the Fed is both willing and able to “protect” the prices of risk assets. I think they will be in for a very rude awakening, but if they are absolutely determined to maintain this belief, there really isn’t anything I can do about it; it’s a matter of faith.
A number of other investors are increasingly becoming concerned that something doesn’t seem right, however. Whether it is a nagging feeling, a specific concern about something like asset allocation, or a question about things that don’t make sense, some of those investors will be looking for answers.
While it is certainly natural to feel uneasy in a time of great uncertainty, and I certainly don’t pretend to have all the answers, I can provide a great deal of context for better understanding the investment landscape. Since my primary goal is helping investors and not selling products, I am able to approach challenges in a way that is distinctly different from what most brokers, advisors, and research platforms do.
For example, when stocks go through a period of selling off, investors often receive notes from organizations that have anything to do with their investments. The notes typically caution them to not overreact and implore them to stay focused on the long-term. I receive those notes too.
While these messages are not wrong, per se, they aren’t especially helpful either. They rarely explain what is going on or what the implications are. I have yet to see one that provides any substance. Such messages are designed to retain assets and that’s it.
This is exactly where my approach with Areté can be so helpful. Since my approach to investing involves constant research in an effort to understand the landscape as best as possible, not only can I answer questions and provide context, but I am available to do so on a personal basis. By establishing a robust strategic perspective, investors don’t need to be so concerned with day-to-day events and can instead focus on a few key priorities.
Also, while investment research comprises a great deal of what I do with Areté, so too does decision making. All the great ideas in the world don’t matter if they don’t get implemented with actual portfolio actions.
This is no trivial factor either. When you are inundated with information, especially conflicting reports, it can be hard to rise to the threshold of acting. It is all too common to fall down a “rabbit hole” of research topics or to simply put off important actions until things “clear up”. Either way, failure to act can be extremely costly.
Finally, this relatively new risk environment certainly makes a lot of the work I have done over the last several years resonate more deeply with investors. While this is good for Areté, it doesn’t mean very much unless and until it can be applied to help people improve their investment outcomes. If you know of anyone who could benefit from this work please with let me know or invite them to contact me.
Thanks – I appreciate it!
David Robertson, CFA
CEO, Portfolio Manager
An eventful quarter in the markets also shifted the perspective of the business landscape. Just last quarter I complained that monetary policy had served to “almost eradicate any perception of risk in markets.”
After the turbulence in the quarter, I’m not worried about lack of risk perception any more! The severe selloff in March re-acquainted many investors with what it feels like to have their portfolio down on the order of 30%. Many felt the kind of pain that can serve as an impetus to do things a different way.
For better and worse, many people do not appreciate risk until it hits. Insurance is always much more costly just after a hurricane than just before and it is no different with investments.
The good news, then, is that in a space of just a few weeks the types of “insurance” that are endemic to Areté’s business mission – like research, risk management and strategic perspective - have become more valuable and have acquired a broader audience.
The explicit recognition of risk is a necessary, but not a sufficient, condition for success, however. What I have observed in stock prices and market action in the first several days of April is that the selloff served as a good wake up call for investors, but not a loud call to action. It seems investors are being slow to fully incorporate the depth and breadth of economic harm that is being caused.
My base expectation is that investors have become fairly complacent after more than ten years of rising markets, with only periodic and transient episodes of adversity. The public policy playbook has been to come riding to the rescue any time it looks like there might be a serious problem and prices could fall a lot.
Some investors will be stuck on autopilot and continue assuming the Fed is both willing and able to “protect” the prices of risk assets. I think they will be in for a very rude awakening, but if they are absolutely determined to maintain this belief, there really isn’t anything I can do about it; it’s a matter of faith.
A number of other investors are increasingly becoming concerned that something doesn’t seem right, however. Whether it is a nagging feeling, a specific concern about something like asset allocation, or a question about things that don’t make sense, some of those investors will be looking for answers.
While it is certainly natural to feel uneasy in a time of great uncertainty, and I certainly don’t pretend to have all the answers, I can provide a great deal of context for better understanding the investment landscape. Since my primary goal is helping investors and not selling products, I am able to approach challenges in a way that is distinctly different from what most brokers, advisors, and research platforms do.
For example, when stocks go through a period of selling off, investors often receive notes from organizations that have anything to do with their investments. The notes typically caution them to not overreact and implore them to stay focused on the long-term. I receive those notes too.
While these messages are not wrong, per se, they aren’t especially helpful either. They rarely explain what is going on or what the implications are. I have yet to see one that provides any substance. Such messages are designed to retain assets and that’s it.
This is exactly where my approach with Areté can be so helpful. Since my approach to investing involves constant research in an effort to understand the landscape as best as possible, not only can I answer questions and provide context, but I am available to do so on a personal basis. By establishing a robust strategic perspective, investors don’t need to be so concerned with day-to-day events and can instead focus on a few key priorities.
Also, while investment research comprises a great deal of what I do with Areté, so too does decision making. All the great ideas in the world don’t matter if they don’t get implemented with actual portfolio actions.
This is no trivial factor either. When you are inundated with information, especially conflicting reports, it can be hard to rise to the threshold of acting. It is all too common to fall down a “rabbit hole” of research topics or to simply put off important actions until things “clear up”. Either way, failure to act can be extremely costly.
Finally, this relatively new risk environment certainly makes a lot of the work I have done over the last several years resonate more deeply with investors. While this is good for Areté, it doesn’t mean very much unless and until it can be applied to help people improve their investment outcomes. If you know of anyone who could benefit from this work please with let me know or invite them to contact me.
Thanks – I appreciate it!
David Robertson, CFA
CEO, Portfolio Manager
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