Updated: Jul 2, 2020
We’d like to provide you with an update on our firm and share some of our thoughts on investing during this uncertain time.
Day-to-day business: While our business operations continue uninterrupted, Mangham Associates’ staff has gone into virtual-office / social distancing mode. In a recent staff meeting of 17 people, three were in the office, while everyone else was working from home offices. Through technology, we meet weekly as a full team to identify best practices, hone our virtual office skills and help each other turn anti-virus practices into habits. Vendors, managers, and clients are not allowed in the office. Unnecessary employee travel of any kind is discouraged. We are maintaining our processes and diligence to keep our team members healthy, and protect and manage our clients’ assets.
COVID-19: We’ll leave a detailed update on the pandemic to others, but for our purposes we are assuming that more difficult days are ahead. Recent history suggests that in the early stages, undiagnosed cases are an order of magnitude greater than confirmed cases, especially in countries with shortages of testing (like the U.S.). Moreover, the majority of countries (perhaps Taiwan, Singapore and Hong Kong being the few exceptions) will likely experience healthcare systems that are overwhelmed because of insufficient preparation. Perhaps the steps we in the U.S. are taking will markedly “flatten the curve,” but regardless, the peak of the contagion is clearly still ahead of us.
Investing in the face of crisis: Risk aversion and surprise has caused investors to shed stocks worldwide. Not surprisingly, some companies, such as internet platform companies, have fared much better than airlines and hotels. Bonds have done well as yields have plummeted toward zero. Value stocks, such as commodity companies and banks, have done poorly as investors increasingly expect GDP shrinkage. Gold has gone up slightly – gold mining companies have declined. In short, there have been few places to hide, excepting (already expensive) long-term bonds and companies that provide services essential to quarantined life, such as Netflix and several health-care companies. Importantly, it is a near certainty that the world will emerge from the virus with restless populations and pent-up demand. The global economy will rebound, and human ingenuity and industriousness will again be unleashed. Governments and central bankers are injecting unprecedented amounts of liquidity into the system, supporting the global economy and likely permanently changing the relationship between government and commerce. For long-term investors, the key is to not miss being fully invested at the nadir and to recognize that the market rebound will occur well before the pandemic peak, when the promise of good news starts to outweigh the bad. We will not recognize when the rebound has started at the time (it may already have) – the only way to recognize a market bottom is in the rear-view mirror.
Risk control and opportunities: Faced with the uncertainty of when the bottom will occur, we are monitoring our clients’ portfolios and periodically rebalancing back to targets, generally from bonds to stocks. Not doing so risks missing the inevitable rebound and places our clients’ long-term investment goals at risk. We are also continuing to explore opportunities such as private equity firms suddenly able to find bargains in a transaction-starved world, and talented value managers sniffing around among extraordinary bargains in beaten-down stocks. Finally, we are exploring the possibilities of the economic world beyond COVID-19 – a world in which central bankers have exhausted their monetary tools, dollar strength is no longer taken for granted, and inflationary pressures are reawakened.
We remain coordinated and connected and would be delighted to hear your thoughts and questions. Please reach out to any of our team members if you wish to dig deeper on any topic.