One of the painful lessons of being a research-focused, valuation-based investor in the decade and a half after the GFC is it didn’t matter. Actually it did matter; having those traits was a distinct disadvantage in a market flooded with liquidity and one the Fed was determined to support. The more you tried to invest prudently, the more you fell behind.
The number and type of hedge fund closures was also remarkable. The vast majority of investment luminaries I respected and followed shut down, sold out, or converted to a family office. There just wasn’t a business, or at least not a good business, in doing the hard fundamental work of investing.
After the pandemic, things changed. A big swoon followed by a big recovery followed the same basic playbook involving Fed support, but it also unleashed inflation. Even more importantly, an inflationary mindset was unleashed. Everybody knew that everybody knew that prices were going up.
This has fundamentally changed the constraints on the Fed, and as a result, it has changed the entire complexion of the investment – and investment advisory - landscape.
Inflation is bad for bonds and bad for multiples on stocks. It is also poses a serious challenge to a large group of investors who have become habituated to investing in a very low rate environment. Now, all the rules and heuristics that worked so well from 2009 through 2021 are no longer working with any consistency.
The other side of that coin is things are getting so much more interesting (and rewarding!) for those of us who still have the skills and muscle memory to do good old fashioned investment analysis. It’s funny how a little adversity can change the game!
It is also personally gratifying to be able to help clients navigate what is by most standards an extremely difficult investment environment. I founded Areté to help people achieve better investment outcomes – and it’s nice to be in a position to do that!
Finally, if you ever have questions, or want to follow up on something, you can always reach me at firstname.lastname@example.org.
Thanks for your support!
David Robertson, CFA
CEO and founder, Areté Asset Management