2020 was tremendously challenging for investors independent of style, geographical remit and experience. We were very lucky and slightly skillful, having positioned our portfolio across secular, tech-enabled themes and having entered the year with an adequate cash-buffer to draw from. And we are relieved that the worst appears to be behind us.
Any interesting lessons learned?
The Covid-19 crisis led to personal tragedies and wide spread fear that led to the most extreme volatility spikes and sell-offs. However, central banks in many countries and in particular in the US as well as governments stepped in faster and more forcefully with unparalleled monetary as well as fiscal stimulus. Bolstered by 100bps+ lower rates across tenures markets swiftly looked beyond the short-term pain and started discounting long-term possibilities. A new bull markets was subsequently born on the abundance of pessimism and against the backdrop of sharp contraction of economic activity across the globe.
Could this be a new normal?
Some structural changes might indeed have occured. The capabilities of central banks and willingness of governments to intervene was breathtaking. Our guess is that the FED would have even started buying equities if required. There are of course concerns about the long-term consequences of incredibly expanded central bank reserves, but this should not take away from an ‘All-Star’ performance that we witnessed.
There also seems to be a new kid in town, referred to as the Robinhood trading gang who trolled and outperformed the ‘smart money’ with ease. We wonder how meaningful the Robinhooders really are when it comes to their actual impact on marginal demand and supply. But if we assume that they do indeed move markets we should certainly spend more time understanding their expected preferences and risk appetite going forward.
So what about 2021? We shall turn to some outlooks in short order.