Denial in the Face of the Economic Winter

Denial in the Face of the Economic Winter

As followers of my Murrinations, from today my subscribers will be known as Arkites, after my strategy to survive this economic crash which I named The Arkent Scenario.

Going forward, the first enemy we face is denial.

Reality is repeating the storyline in Game of Thrones, of the winter spreading across the land. Complete with the denial of those that had not witnessed it first hand, of the advance of the white walkers and their accompanying winter, destroying all in front of them, unless mankind is united in a common cause.

As expressed in my most recent commentary, I expect the long only equity holders to commence selling down their positions as they realise that this global shut down will be much longer than three months and more likely, will be for 12 months, destroying all share holder value. The only company's who look like they will preserve shareholder value, are those that can go into hibernation as the economic winter sweeps over them.

Below is my perception of the approach by private pension fund managers in the UK, which encapsulates the long only equity holders view of the world, as of this week:

Whilst the stock markets have fallen sharply as the crisis has escalated, fund managers views on history, suggests that forced selling is the wrong response to recent global events, when viewed from a long-term perspective. This selling of assets in a panicked market space is perceived as an emotional rather than rational, disciplined response. Many pride themselves that discipline lies at the heart of their approach,  supported by a rational perspective. In addition, they present as applying a long-term horizon to their investment strategy during this crisis.

So looking at this approach we see that: 

1.       Historically, there has never been an event on this scale before in industrial times. But if history tells us one thing, it is that pandemics hitting declining empires only accelerates their demise. AKA America and the EU.

2.      Is a disciplined approach in this content appropriate: From my 35 years of trading experience, failure to act on a large magnitude event, that falls completely outside an investment thesis, is the height of investment ill-discipline. Millions of investments have been destroyed in the past 100 years by such actions and it is warned against by the old trading adage "the first cut is the cheapest".

3.      So what of a rational approach? Actually this approach is the highest level of emotional response, because it is based on complete denial, when the reality of the magnitude Wuhan global shut down is right in front of us.

4.       Looking to the long-term horizon? Successful investment is about financial returns not time. Price always wins over time, so as the worlds stock market goes into free fall in the weeks ahead and end up at 10% of their January 2020 valuations, the long term view will mean very little.

Today the banks and pension funds are completely clueless as to what comes next, and yet the general public looks to them for advice, as they have paid them fees over the years to look after their money in a trending bull market that has lasted a decade. If you wish to preserve any capital at all then remember the adage The first cut is the cheapest.



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David Murrin