Stick to your plan
September 11, 2001 shook the world. In this extract from keynote magazine, MLC’s General Manager of the Investment Management Division, Michael Clancy, talks about its impact on financial markets and on what lessons he believes we can learn from it.
On September 11 2001, Mr Clancy was in a taxi headed towards Heathrow airport in the UK, bound for an appointment with an investment manager at the World Trade Centre in New York at 9am the next morning.
“Over the radio we heard on the news an aeroplane had crashed into one of the Twin Towers. At that time we presumed it was an accident involving a light aircraft,” he said. “The concept that somebody would deliberately fly a plane into one of the towers was unimaginable.”
Mr Clancy was in the British Airways lounge at Heathrow Terminal 2 when the second plane hit.
“It’s one of those things you will always remember; where you were when it happened,” he said. “I think a lot of people were wondering what the world was going to be like afterwards. And certainly, the world has been different. Just try going through an airport in the US or anywhere else for that matter.”
For investors, the days following September 11 were extremely hectic. With the World Trade Centre right in the heart of Wall Street, the US stock exchange was forced to close for several days.
Global financial markets saw a period of heightened uncertainty and volatility as the world struggled to comprehend what had happened, and what it meant for the future. This unchartered territory was to be another big test for MLC’s multi-manager investment process.
“The way we manage money at MLC is to be long-term investors. We place great value on diversification and have a systematic approach when it comes to rebalancing,” said Mr Clancy. “After September 11, elements of our process kicked in quite strongly.”
MLC’s approach to rebalancing portfolios means when equity markets fall substantially and rapidly, we allocate additional funds to that asset class to bring its value back to its strategic asset allocation target.
“At the time, when there’s lots of uncertainty, the last thing you feel like doing is buying into risky assets, and shares are risky assets,” said Mr Clancy. “However, investment logic and practical experience has taught us that it is absolutely the right thing to do.”
As a result of this process, while many others were pulling their money out of the market, MLC was a buyer of hundreds of millions of dollars worth of oversold shares all around the world.
“One year later, equity markets had recovered quite substantially and MLC’s Growth Portfolio, which has a lot of equities, was up in the top quartile,” said Mr Clancy. “It was a real reinforcement of lessons learned previously; that being consistent and applying our process in a disciplined way makes a lot of sense and does work.”
Mr Clancy believes the experience of September 11, while different in nature, offers lessons to investors in today’s world.
“The first lesson is that, even in the midst of a financial market crisis, basic economic activity continues,” he said. “Gross Domestic Product (GDP), employment, interest rates, inflation and confidence are ultimately the most important drivers of the ability of companies to still make profits, and deliver good results to shareholders.”
Another lesson is how to anticipate those events that nobody saw coming.
“There are some things you can plan for, but other things, like September 11, you just can’t,” said Mr Clancy. “You can’t accurately model or forecast the impact and timing of these kinds of risks. In investing, the best way to protect against these sorts of risks is to be really, really well diversified across asset classes, investment styles, countries, industries and so forth. At MLC we invest in over 1,000 companies from all over the world as well as in bonds issued by many sovereign governments.”
Mr Clancy’s final thought to investors, based on his experiences of September 11, is to stay disciplined and stick to your plan despite the ‘noise’ that might be happening around you.
“Don’t change your plan in the middle of a crisis. Unless your circumstances have genuinely changed, you’re probably reacting emotionally, rather than rationally,” he said.
Extract taken from keynote issue 20, 2008.
Rate this article
(4 votes, average: 1.5 out of 5)
Loading ...