United States, MCI discussed on Masters in Business


An extraordinary crisis and all all crises are extraordinary but one of the things which was most extraordinary about mosh twenty twenty was that it. Markets fell very quickly. We've seen that before. But then they reverted remarkably quickly and really the most similar crisis In terms of market action that you can put your finger on since the second world war Was the october eighty-seven crisis so That that very rapid full you had followed by an almost equally rapid recovery. So so that might say well. You know if you fitted if you've sort of tested you crisis protection on all these slow crises. Then maybe you do to uh in this foster crisis. Nice actually not what we found so we found that We hadn't quite good strength of strategies during the march april period so for example futures trend following something. We talk about quite a lot Did you really rather well in march and april of of last year But we also talk about for example rebound saying and and and trying to stop rebound thing Which can can have the nasty effective Of buying the losers. And then if the lease carry on fooling than you dammit you just bought a whole bunch of loses time for another month full and we found that if you if you have strategies which try and control your rebound thing but they have to have a relatively row they have to be quite fun strategies and that would be my real point so most of our protection strategies are quite fos the signals that quite quick they use data That goes back typically a few weeks And they can meet positions around quite rapidly and that worked pretty well in march april last year. If you do much slower strategies you would not have had the protection characteristics right and and to put some numbers on on the speed of march. Twenty twenty we s and five hundred fell thirty four percent That was the fastest thirty percent drop in history. And i believe it was just a day under a month maybe a few days under a month and then the recovery from the end of march beginning of april was back to break even by august. That that's a pretty astounding turnaround a arguably faster than the recovery of from nine eighty seven Which was itself. Pretty quick wasn't absolutely so it was just totally extraordinary and from that perspective. You know the past and give you a particularly good guide as to how how that crisis would would unfold. Maybe that's sort of retrace my point a little bit that you come you come bill protection strategies to really trying to put your finger on exactly what's going to happen you have to. You have to be aware that you focusing ability is poor And you really go to have a strategic response. and that's why we call the book strategic management. It's really a set of strategies that the plan and you can't make the plan on fly. You know when you really the worst thing you could have been doing. Last year is making protection strategy. Deer in march of twenty twenty was too late by that point yet to make his view protection strategy in the months and years before then and then you had to be implementing it during march twenty twenty so there was a quote of yours i really liked and i wanna ask you about this quote. We are in a risk your environment than we have been in the past twenty years for the foreseeable future unquote the past twenty years really. There were a lot of risky events that took place from nine eleven to the great financial crisis to the pandemic. What makes this a riskier environment. And why do you see this as Being a persistent risk for the for the next foreseeable future so the reason that i think we're in this highly much riskier. Investment being is because markets much less diversified than at any point in my career. And so you know. I started trading markets. When i was a high school in the late nineteen eighties and at that time. People got very worried that the japanese market was found fifty percent of the. Mci will vote today. The us market is two thirds of the world. So it's spend that's the highest. It's ever been highest rate that any one country has ever been in the global equity index. And then if you not digging within the us market and this is a little tougher to do But if you dig into. The proportion of the market made up by tech and the reason is difficult to stay change the classification system a couple years ago. Then you'll see. The tech is a bigger portion of the us equity market than it has ever been including and the late nineteen ninety s in the tech bubble. So you have an incredibly concentrated equity market both globally into the us and also by sector Within the us and for me that means that you know this is not sort of looking at the vix today tomorrow yesterday. Whatever more strategically The market feels much more likely to be able to produce Unpleasant outcomes Because the only free lunch you haven't financed the diversification you. You have the least diversification i've ever seen that's kind of interesting. So we have concentrated non diversified portfolios. And one of the things we've seen is domestically the us seems to be a higher poor proportion of global equity markets and then within the us. The text actor continues to increase. Its waiting when the s&p five hundred what does that mean for the future of of risk and managing it..

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