Diversification, expertise and leadership – Source of Confidence in challenging times
Not too long ago I was writing here about wealth management during extreme market conditions and how easy it is for the emotions to take over. I wish the turbulent times would be behind us but unfortunately this is not the case and by the looks of things we will continue experiencing geopolitical events that are sending one shockwave after another into the financial markets and even our personal lives. Navigating through difficult times in financial markets is not that different than being prepared and enduring difficult periods in real life in general. It is safe to say that today we are facing unprecedented times both in financial markets and in real life. During these conditions I would like to share some thoughts about navigating through challenging times in wealth management and in real economy. Same principles will prevail in professional and private lives.
What we have experienced in the financial markets over the past couple of months is unprecedented. One of the more obvious bear-market rallies in memory unravelled in August and September, as July’s gains were swiftly wiped out by the familiar themes of USD strength, unwavering central bank tightening, higher than expected inflation and slowing economic growth.
While the Ukrainian military counter-offensive made for encouraging headlines, it also confirmed the likelihood of a long period of conflict that markets will have to digest and all of us to endure. The big question for investors now is how much of the pessimism is priced in by markets, and when does it become the right time to start positioning oneself for a potential recovery? With the bond markets showing extreme stress, the contagious volatility will affect all financial markets and short term trends will be difficult to follow. Essentially, while central banks continue their aggressive tightening, markets will continue to be under stress. In the meantime, wealth manager’s focus is on risk management and liquidity to ensure we have the tools to participate in the coming recovery.
Enduring extreme circumstances in financial markets follow the same principle as in real life. Ensure that your eggs are not all in the same basket so don’t forget to remember to diversify. You may lose some eggs but others are hatching and yielding new. Make sure your assets are liquid enough and you have built contingency buffers for the periods you may need to rely on them. In real world as in financial markets best opportunities arise from special situations and one may want to keep this option open by maintaining liquid reserves for these opportunities.
Difficult times also call for leadership. This leadership needs to present in many level in your life. Sometimes it is for you to take charge and show leadership and at times its time to seek leadership elsewhere around you.
While diversification and liquidity may get you already far, difficult times may also require other measures. Maybe the best preparation of all is being well educated and well advised. It will provide source of confidence to deal with prosperous times as well as times of crisis. Remain calm and rational is easier said than done. Having trusted advisors around you will help you to interpret the world around you and be prepared to face the challenges or special circumstances. In today’s world where the information flow is endless and at times also biased, we also need trusted people to funnel and interpret the information relevant to our circumstances. The chief investment officer role may all of a sudden translate into a chief information officer, a service that a truly trusted wealth managing partner is happy to provide.
Difficult times also call for leadership. This leadership needs to present in many level in your life. Sometimes it is for you to take charge and show leadership and at times its time to seek leadership elsewhere around you. Leadership is also to show support for other leaders and convince peers for the journey. Without a leadership there is a risk that people or organizations find themselves drifting and not focusing to deliver towards common target. Leadership is also not to please everyone. Decisions required might be difficult but commonly agreed when taken for the right reasons.
Like individuals, organizations without leadership are more at risk during the times of crisis. When the society have clear and commonly subscribed values and norms, strong leaders can stand up from the crowd and lead the development towards desired outcome. For the same reasons organizations often have their own set of values that are established for servicing their stakeholders in best possible manner. An organisation’s values lay the foundation for what the company cares about most. They provide a common purpose that all employees should understand, work towards and live by. Once you define and promote your values, employees come to understand the behaviours that are expected of them that will lead to success.
Longevity and consistency are typically attributes to a successful organization. Organizations capable to deliver this are often highly regarded by their staff members and customers for the consistency and predictability.
After having established the purpose, values and goals every successful organization needs to have a clear and well-articulated strategy in place. This strategy should describe how the goals will be achieved by the means of resources utilized.
As with the values, a clear strategy will allow people in the organization to understand the directions and actions of the organization. Strategies can be short- or long term, but they need to remain consistent with the purpose and underlying values.
Longevity and consistency are typically attributes to a successful organization. Organizations capable to deliver this are often highly regarded by their staff members and customers for the consistency and predictability. This is not at all to say that successful organizations are static and immune for change. To the contrary in fact. Most successful companies have a clear long terms strategy but are nimble to adjust their operations to address prevailing conditions. Implementing changes and admitting mistakes shouldn’t be taken as a sign of weakness but as sign of confidence for being able to address difficult issues when so required.. It is for this permanent change that we need to be prepared for and be open to challenge our past behaviour.
As individuals we are reflecting our lives and resetting our goals. The same applies again for wealth management as well as for organizations. Rethinking the future with most recent information and adjusting is a continuous circle that we need to remain open for throughout our lives.
In recent years we have seen quick acceleration towards areas like digitalization and sustainable finance initiatives. Irrespective of ones perspective or preferences, I am convinced the changes towards digitalization and sustainable initiatives benefit all of us regardless how much weight we give them on individual level. We tend to easily think the current- and the future state are competing between each other and as such one excludes the other. This is however not the case at all. The change needs to be seen as a journey where state of matter is continuously challenged by evolving circumstances. In a same way like 20 years old information technology fails to deliver today the latest cutting edge technology or ideology would have failed to deliver 100 or 50 years ago. One is not better or worse than the other, everything has its time and place.
My role as an executive of a Bank is to ensure we can provide source of confidence to our clients, leadership to our staff and at the same time continue to evolve in consistent manner to remain relevant and value adding partner in wealth management for our clients.
Juho Hiltunen
Deputy CEO of Banque Havilland S.A.
(source: AGEFI Luxembourg (French version))
