In the fall of 1999 I was a newly beaten CEO of a large Canadian asset manager and I felt pretty good about myself. That was until an important customer, a prominent businessman from Vancouver, called to introduce himself and tell: “Tom, your company is no longer relevant.”
He referred to the fact that we did not have enough technical shares, such as Cisco, Nokia, Intel and, of course, Nortel. We just didn’t get the DOT-Com era.
Irrelevant? It turned out to be far from the case, but his words hit hard because we did not keep track of the high -flying American market at the time.
Today a lot feels at that moment. If you are a portfolio manager and do not have enough technology, in particular AI, it is a struggle to keep up with the market. And you are reminded every day by customers and the media.
What should I do in such situations? The first is to remind myself of what brought me here. If I have learned something from earlier cycles, this is not the time to fold your tent.
During the technical boom, more than a few value managers changed their stripes and shifted to where the action was. After the growth shares were reversed, their franchises never recovered. The renowned Hedgefonds Tiger Management has taken a bigger step. It closed its doors in March 2000, those days before the market turned around.
What else? Well, I pray for rain (a cooler market would help) and talk to veterans who have experienced this before.
I also take out a familiar old file folder with the name “Keep. Herlez.” It contains reports and articles that I have saved. While I was rumbling through it last week, from November 2004 I came across a Peter Bernstein interview in Money Magazine. Mr. Bernstein is the author of Against the Gods, a groundbreaking book about financial risk. To quote the introduction of the article, he is ‘Patient Wisdom Personified’.
Mr. Bernstein has long passed, so we do not know what he would say about today’s investment landscape, but his words from 2004 are still useful and timely. I will compile the interview via a 2025 lens.
When asked what important things he had to unlearn over the years, he said: “That I knew what the future had, I think. That you can sort this thing … … I have become more humble about it over time and with that comfortable.”
He went out: “Everything can happen. There is really something like a ‘paradigm shift’, when the view of people on the future can change very dramatically and very suddenly. That means that there is never a time that you can be sure that the current market will be a repeat of a well -known past.”
Fortunately, he has a solution for endless uncertainty. “There is diversification for that. It is an explicit recognition of ignorance. And I see diversification not only as a survival strategy, but as an aggressive strategy, because the next windfall can come from a surprising place. I want to make sure I am exposed to it.”
Diversity is from Vogue today because markets were led by a handful of American technical shares. I am sure that Mr. Bernstein would be frustrated by how long it needs before those other windfalls arise, but they will do that.
His understanding of the behavior of investors, in particular their inconsistencies, has always stayed with me. He noticed that investors generally know their fallibility in quieter markets, but trust their views and more courageously in their actions on points of extreme panic and euphoria.
I would place today’s investors in the last camp. I recently listened to a technically oriented podcast in which the panel agreed that investors do not earn any money with the possession of the S&P 493 (the S&P 500 min The Magnificent 7). According to them, AI and Crypto are the only places to be.
Mr. Bernstein’s most interesting comments use the speculative times in which we are located, when returning is the only purpose and the risk under the carpet is swept. “You have to think about the consequences of what you do and determine that you can survive them if you are wrong. Consequences are more important than probably.”
In other words, there is always a chance that you are wrong. If you are, and your portfolio has been destroyed, it is not a justified strategy.
And when Mr. Bernstein was asked 21 years ago if investors became smarter, he said: “I think my answer would be no. The phenomenon for day dealer would not have developed from a population who was thoughtful about how the stock market works.”
#solution #investor #endless #uncertainty