Cluster Family Office Blog

According to what has been published Recently, Goldman Sachs warns of a second recessionary downturn in 2009. Assuming that the first must be the one we are currently experiencing, it warns that the S&P 500 may suffer significant falls as a result of poor results from major companies, given what we have seen at General Electric (GE) for example. This is clearly reasonable, but the curious thing about this is that they are more than five and a half years behind what Stephen S. Roach had already warned about back when he was chief economist at Morgan Stanley.

It is true that Stephen Roach is known as the «perpetual bassist«, and some of you will say that when someone consistently predicts catastrophic scenarios, unfortunately one day they’re bound to get it right and take great credit for it as a financial guru. But what’s extraordinary is that he came to this conclusion back in the middle of September 2002 and his pessimistic forecast for the economic outlook was as follows: He warned that if the US went to war with Iraq, there would be a very significant rise in the price of oil, which at that time stood at 28 $ per barrel. He also pointed out that the disparity between property rental income and sale prices was the widest in US history and could not be sustained for long. This decoupling was likely to trigger the the bursting of the property bubble. He also warned of the risk of the the bursting of the consumer bubble, as well as the deflation, which, in his view, was already looming on the horizon of the world’s largest economy. He therefore called on the newly appointed Fed Chairman, Greenspan, to cut the $ interest rate from 1.75 (the lowest in 40 years) to 1%. He also highlighted the need for the easing of monetary policy would result in a weak dollar. Finally, he pointed out that, given the enormous weight of the US economy in the global figures (21% of world GDP in 2002), the recession I might be there again and to globalise. At this point, Roach perhaps failed to foresee the spectacular growth of the emerging economies, particularly China’s. And for that reason, the discussion today focuses more on the ability of these rapidly expanding economies to counteract the recessionary effects of the developed world. However, they may not be strong enough and could end up succumbing to the global recession. Although I personally believe and hope that this will not be the case.

Let’s not forget that at that time the euro was trading at 0.9750 $ and the analysts They were talking about the weakness of the $ caused by the fragility of its economy. Clearly, no one foresaw a future subprime crisis or the liquidity injections needed to keep a system running that we never thought could ever stop working. Let us recall the trend in interest rates set by Greenspan in the years that followed: a cut to 1% in June 2004, followed by a rise to 5.25% over the next two years. As we have all seen, since October last year the Fed has had to implement an emergency rate cut due to the cabin depressurisation. But what is clear is that Stephen Roach made a prediction that was very, very close to how things have actually turned out to date.

However, his predictions have not prevented Morgan Stanley from being drawn into the credit crisis. Perhaps the board of directors had become too accustomed to Roach’s vision of impending doom and, as a result, banished him by promoting him to Chairman of Morgan Stanley’s Asian operations. The extent to which this has actually affected the bank – as with almost all banks – remains unclear, and the market is pricing in the outcome by trial and error what he is quite capable of or senses. Up to now, it seems that only JP Morgan escapes the fire stock market. But only up until today, and it only seems that way.

Perhaps Stephen Roach made many inflammatory statements throughout his career that came to nothing. It is possible that we are opportunistically praising someone who was consistently wrong during boom times. But if we focus on the timing of his prediction, it really is impressive. He warned of the highly likely war in Iraq months before the Resolution 1441 of the United Nations Security Council, adopted on 8 November 2002. This was well before the famous Azores summit of 16 March 2003. But the most important thing is that he was able to foresee the rise in the price of crude oil from 28$ per barrel and its recessionary effects. Had the rise in oil prices occurred without the invasion of Iraq, the situation in the US today, without that oil, would be far more precarious. But I shall not be the one to justify that war or any other.

Perhaps not even in his worst-case scenario did Roach envisage oil at 110 $. But it is true that the forced depreciation of the $/€, which has fallen from 0.9759 at that time to 1.5850 today, and the seizure of Iraq’s oil have allowed the American patient that he is not already dead, like so many other civilians and military personnel.

Below is an extract from his prediction of Armageddon economic situation that he outlined off the record among a select group of fund managers, with no journalists present, but the details of which were leaked to the Boston Herald. Note the date: 24 November 2004.

José María Díaz Vallejo has been selected to join the Academy.

Of course, he’ll have to learn a lot and work hard now, but he’s made it. He’s where most promising young players would love to be. Where many are nominated for life and from where some are dramatically expelled, never to return.

To be an artist, you need to have Talent, and JMDV has it. But it won’t be easy. At the Academy, the discipline of the benchmarks It’s going to be a nightmare. What’s more, the teachers won’t have the patience to teach you for very long; you’ll have to learn on your own. The hard way.

It is difficult to invest your own money, but it is even more so to invest clients’ money. If you handle anonymous sums without ever dealing with the owner of the money, the work becomes much more clinical – not easier, but certainly more objective and professional. However, if you know the client to the extent that a Family Office does, with an exhaustive study of their personal and family circumstances, emotions can interfere with professionalism. That is why a counsellor should not manage assets, and a manager should not act as a counsellor to the owners of the assets they manage.

José Mª, at the Academy you will grow and improve in almost in every respect. But in some ways it might actually do you a disservice: there you might come across other aspiring ‘Triunfito’ contestants who might not be the best company, but the real danger is running into mediocre teachers – and there are plenty of them. What’s more, integrity it is something that, not only you must bring it from home, but it can easily get lost in the Academy. The benchmarks, the fees and the competitiveness in terms of results, they ruin the vast majority of talented players. If that happens, José Mª, change academies. There are plenty of them, but only a few are really good. But in my opinion, the best of them all will be the one that you and a few other partners might set up in the future. A a real star It shouldn't just be in sport, but in everything, in life. It should be in one's professional life, but on a personal level as well. At business school, you can learn to be a better manager, but not a better person. And that is essential for success in life and for building a career you can be proud of when you have children and grandchildren. I can also assure you that it is an essential ingredient for success, although not the only one.

Please forgive my arrogance in giving you advice as if I were in possession of the truth. Nothing could be further from the truth; I’m in no position to do so. But speaking with the humility I so strongly recommend to investors, and drawing on a certain amount of experience, I’d like to say the following to the teachers who taught you the casting and also to the triumphs of your new academy, whatever the case may be, and to anyone else who might be reading this: take good care of JMDV – you’ve got a real talent on your hands, and you know it. After all, We’re such little porters…

You’re starting at the academy tomorrow, Monday 14 April 2008. Let us know, José Mª, when you’re performing your first live show. Everyone your neighbours We’ll be following your performance with great interest and will support you so that you’re voted the favourite. But if you’re nominated (or you nominate them) Don’t be afraid to switch academies; there are plenty that would be delighted to help you succeed.

Once again, many congratulations, best wishes for good health and €€. See you soon.

945 billion in Q1–Q4. Almost a trillion euros, or a quadrillion US dollars – whichever sounds more impressive. These are the potential figures that have been calculated as losses caused and likely to be caused by exposure to the US mortgage market and related structured products. Of these, only a quarter have materialised to date. However, if, and only if, the data from IMF are reliable, we are seeing the light at the end of the tunnel. We said as much back in September, just after the credit panic of August that some saw as the end of the system, although since then the global economy has been in freefall. But now it is no longer an optimistic blogger in the midst of a summer slump saying this, but the IMF. The light is far off, the exit is at the 945,000-kilometre mark, and in all likelihood many will fall by the wayside. But it has an apparently quantified end.

I’d recommend that those of you who haven’t done so yet take a look at the summary of the IMF report a 28-page booklet in Spanish with video included. It is, after all, just one opinion among many that have been written in blogs and newspapers – whether right or wrong, chaotic but always FREE. In the case of the IMF, it is an official version set out and quantified in black and white, and far more realistic than the political accounts that have been put forward to date. This report should be taken with a pinch of salt (like all of them), but its publication is welcome. Someone had to do it.

As we have already said, fear of the unknown is far more damaging to the confidence required in the economic system than fear of known figures and timelines. Furthermore, although the banking crises and the emergence of subprime loans seen to date are merely the tip of the iceberg, the market has probably already priced in well over half of this crisis.

Clearly, RV is the least affected by this discount, but perhaps it is the well where the investment flow from the RF has sought refuge. Who would have thought that the RV could ever be considered a place of refuge, right?

Some might wonder: How can the stock market be said to have attracted capital inflows if it has been falling for several months? The answer is that given the current situation – that is, the mistrust surrounding the RF, the credit system, with commodity prices hitting record highs, etc. – the stock markets should have fallen much further. Confidence has not completely deserted the stock market just yet.

This equity market safe haven is a much wider and deeper well than that of the bond market, meaning its potential to absorb inflows from commodities and bank deposits remains enormous. Consequently, the bull run in equities could be spectacular if confidence returns to the system, something which, on the other hand, seems unlikely in the short to medium term.

As we have already seen, the lack of confidence in the economy does not necessarily mean that stock markets will fall further. In a scenario of widespread mistrust, we should have seen much steeper falls in the stock markets. But that has not been the case so far, and the question is: what else needs to happen for the stock markets to plummet, continuing the trend that began on 21 January this year? I shall not be the one to venture an answer to that question, but what seems clear to me is that, like so many absolute truths that the crisis has rendered obsolete, confidence and the stock market no longer go hand in hand. We’re certainly not doing well, though an optimist on the lookout for opportunities might say we’re taking a different approach, and perhaps they’d be right.

P.S. Today marks the start of the Rankia’s Series of Talks at Forinvest. Don’t miss tomorrow’s session from 5.30 pm to 7 pm with Fernando Calatayud (Investment, Speculation… and my own thoughts) y Dimitri Uralov (Family Office) on the property bubble, the subprime crisis and a analysis of the current situation and its future prospects. We look forward to hearing your comments and questions.

Hasta hace unos meses, en el mundo financiero, las basuras eran eficientemente recogidas, aprovechadas y recicladas por empresas privadas que hacían de ello su negocio. Estas empresas se llamaban: Crecimiento Económico S.A., Burbuja Inmobiliaria S.L., Financos & Inversópatas Inc., Tipos de Interés Bajos & Co., Vda. de Especulador e Hijos y alguna que otra más que no acierto a nombrar.

En los últimos años la Administración local o estatal, es decir los bancos centrales, no debían preocuparse por esos residuos que servían para satisfacer y hacer crecer empresas como las citadas sin aparente límite. Por nuestro lado, la sociedad civil, estábamos encantados con el orden y la pulcritud que reinaba en nuestras calles. Incluso algunos vecinos habían invertido sus ahorros presentes y sobre todo futuros en dichas empresas, augurándose un porvenir excelente. En el primer mundo, el Estado del bienestar ganaba la batalla de la pobreza endémica de otros lugares del planeta, sin duda alguna. Además sentíamos el indescriptible orgullo de ser capaces de generar riqueza sin que los residuos y basuras financieras nos crearan problemas. Éramos tan listos que incluso de las basuras sacábamos provecho.

La candidez era tal que gran parte de la población ni siquiera era consciente de que nuestra sociedad financiera y nuestro sistema económico generase basura alguna ni residuos tóxicos. Vivíamos en un perfecto The Truman Show financiero.

Pero durante al pasado año, especialmente cuando el calor apretaba, las empresas encargadas de recoger, reciclar y alimentarse de esos residuos, empezaron a sufrir serias dificultades. No sólo ya no crecían más sino que su tamaño había alcanzado tal magnitud, que su propia desproporción y los excesos en constante aceleración forzaron su proceso de extinción. Murieron de éxito, ni más ni menos. A partir de entonces las basuras empezaron a aflorar poco a poco. Al cabo de unos meses el ritmo de basura emergente aceleró y se empezaron a acumular ya insalubremente en nuestras calles.

El problema se agudizaba día tras día. Los residuos y las basuras empezaron a ser desagradablemente evidentes para la población, y la imagen hasta entonces impoluta de nuestra sociedad financiera desapareció como una pompa de jabón ante nuestros ojos, y con ella también lo hizo el ánimo de los ciudadanos. El pesimismo y la sensación de vacío bajo los pies de los inversores es hoy en día palpable.

Ya durante la segunda mitad del 2007 empezaron a encontrarse por la calle titulizaciones hipotecarias (hasta entonces conocidas como deuda AAA) en avanzado estado de descomposición. Pero a medida que han pasado los meses, la situación sanitaria del sistema financiero de nuestra sociedad ha empeorado mucho. Hoy en día ya se acumulan en cada esquina montañas de deuda financiera de origen putrefacto que nadie quiere ni siquiera mirar. El hedor se está haciendo insoportable superado ya el primer trimestre del 2008. El paso del tiempo empeora la situación puesto que la basura se genera y se genera sin cesar ante la atónita mirada de la sociedad civil y financiera. Nadie era consciente de que toda esa basura nos podía enterrar en cuanto el abusivo sistema de reciclaje y eliminación de residuos se desmoronase. Y muy pocos eran conocedores de la ingente cantidad de residuos que éramos (y aún somos) capaces de generar.

Hoy ya podemos ver y oler asquerosas basuras amontonadas en cada esquina, pero entre porquería titulizada de entidades financieras que se descomponen cada día que pasa, también encontramos algún pequeño tesoro aprovechable. De hecho ya hay quien se dedica a remover la basura y encontrar entre la porquería deudas corporativas no financieras que alguien tiró como un juguete roto. Están sucias y apestan, pero bien lavadas, aseadas y cuidadas podemos verlas convertidas en flamantes instrumentos financieros en el futuro. Son solventes y funcionan perfectamente, pero lamentablemente forman parte del detritus que nos hace malvivir hoy en día.

Por su parte la Administración, atónita por la súbita falta de interés de ninguna otra empresa privada en la recogida y reciclaje de los residuos, está por fin empezando a tomar medidas. Parte de la porquería que ya nadie quiere, y cuyo destino era la montaña de basura de la esquina, la está canjeando por aséptica liquidez. Muchos se apuntan al carro y sacan a relucir residuos que todavía no se habían atrevido a lanzar a las aceras como basura apestosa. Pero al menos alguien está limpiando, aunque sea una pequeña parte. La pregunta es ¿cuánto podrá limpiar una administración que no saca más que perjuicio de ese servicio público de limpieza? Y en seguida me asalta la segunda duda, ¿acaso no perjudicaba también a las empresas privadas que aparentemente se nutrían con esos residuos?

Otros, además de canjear lo que buenamente pueden y reconocer los agujeros que la opinión pública puede soportar, también deciden cargarle la culpa al muerto. Pero como no suelen tener ningún difunto a mano, escogen a uno de sus empleados y lo ejecutan públicamente como demostración de su rigor ante irregularidades internas (sic).

Hoy seguimos rodeados de montañas pestilentes de basuras y con grave amenaza epidemiológica, pero parece que el ritmo al que vertimos se ha estabilizado, hay quien dice incluso que ha disminuido. Me gusta pensar que lo peor no ha pasado pero que quizás sí esté descontado por el mercado de renta fija (el de variable quizás siga con el coitus interruptus del que ya hablamos en su día).

Otro factor importante y esperanzador es la proliferación de carroñeros que buscan entre la podredumbre productos financieros aprovechables a precio de basura. Éstas son sin duda las mejores recetas para reciclar la porquería. Pero deberemos convivir mucho tiempo con gran cantidad de insalubres restos despreciados por los carroñeros, antes de que el tiempo los transforme en humus. Y las epidemias acechan.

En un escenario Mad Max es infinitamente más complicado invertir que en el The Truman Show, pero en las montañas de basura de Mel Gibson hay muchísimas más oportunidades (para ganar y para perder) que en el previsible y artificial barrio de Jim Carrey.

I love this game!

Mucho se habla de las diferentes aptitudes que deben tener el buen inversor y el buen empresario, en definitiva, las personas que buscan tener éxito en los negocios. En artículos como “La Poción Mágica del Éxito Financiero”, se dan numerosas claves y consejos muy válidos en este sentido, por poner un ejemplo reciente. Parece evidente, si analizamos algunos casos de emprendedores o inversores de éxito, que todas estas características y algunas otras más se encuentran presentes en ellos. Pero buceando un poco más en sus personalidades, se puede observar también (en muchos casos) la presencia de dos aspectos, a mi modo de ver, muy destacables a la hora de hacer negocios, que si bien no sirven por sí solos para conseguir la libertad financiera, son un empuje bastante importante, amén de convertirnos en mejores personas: la honestidad y la humildad.

En numerosos artículos desde la creación del blog se ha destacado su importancia, pero quiero detenerme en éste para analizarlos en profundidad. ¿Qué implican estas dos palabras? ¿De qué manera me pueden ayudar en mis negocios? Se preguntarán los más escépticos…

Obviamente la valoración que se puede hacer de la contribución de estos atributos al resultado final de las inversiones de un individuo no puede llevarse a cabo de un modo tradicional, como si de la implantación de un plan de marketing se tratase: tanto nos ha costado, tantos han sido los ingresos derivados del plan, luego tanto ha sido su beneficio. No se puede evaluar el coste de ser honestos y humildes, como tampoco su beneficio en unidades monetarias pero sin duda, lo que no se puede afirmar es que no tiene impacto alguno.

Hablemos ahora de honestidad. Una persona honesta no busca aprovecharse de los demás, sino ofrecer un trato justo en el que todos salgan beneficiados. Esto, cuando hablamos de relaciones comerciales, adquiere una importancia supina. El ejemplo más flagrante de falta de honestidad en el trato con sus clientes lo representa el sector bancario, que te intenta vender el fondo de inversión de turno o el depósito bancario más rentable del momento, como si fuese la inversión ideal para uno. En algunos casos, puede que lo sea, pero la mayoría de las veces no hacen más que aprovecharse de la incultura financiera de la gente para obtener sus beneficios. Y lo peor de todo es que la gente sigue yendo a las sucursales pensando que allí se preocupan de hacer crecer su dinero. Nada que ver, ya que estamos, con el propósito de un Family Office independiente creado para velar por los intereses y el bienestar de sus clientes.

Cuando, en una relación comercial, las partes se esfuerzan en satisfacer no sólo sus necesidades sino también las de la otra parte, es casi seguro que en el futuro volverán a colaborar. Además, ambas partes hablarán de la otra muy positivamente, favoreciendo que más gente se acerque a ellos para realizar transacciones sabedores de que van a ser tratados justamente y de que se van a preocupar porque acaben satisfechos. Se trata simplemente de crear un positive cluster effect. Evidentemente, todo lo contrario repercutirá en pérdida de clientes, deterioro de la imagen de la empresa, en definitiva, un efecto cluster negativo.

Solamente con mucho esfuerzo, siendo conscientes de dónde venimos y hacia dónde queremos llegar, teniendo en cuenta que casi todo está inventado, cuidando las relaciones con el resto del mundo, desechando la avaricia, la prepotencia y la codicia, podremos ir avanzando paso a paso, quizá lento, pero sin duda firmemente hacia nuestra independencia económica.

Como ya hemos advertido en otras ocasiones, las reflexiones que vamos a hacer a continuación se refieren a un perfil de inversor medio con capacidad media y preparación para el mundo financiero baja o media-baja, o sea la mayoría de la población que tenga poder adquisitivo suficiente para pensar en invertir más allá de llegar al final de cada mes. Lógicamente muchos de los lectores sobresalen honrosísimamente de este perfil medio en cantidad de activos y/o conocimientos, y no deben sentirse identificados. Dicho esto, vamos a entrar en materia.

Los pequeños ahorradores/inversores, ya sean asalariados por cuenta ajena o pequeños empresarios incipientes, parece que no están viéndose afectados tan cruelmente por los recortes en sus inversiones como los inversores medios como veremos a lo largo de este post. Quizás porque, siguiendo una estrategia lógica, el inversor que sólo dispone de unas docenas de miles de euros o incluso algún centenar, se ha centrado mayoritariamente en RV y más concretamente en bolsa española y europea. Este segmento, evidentemente, ha sufrido minusvalías importantes, pero por lo general no ha perdido nada que no hubiera asumido arriesgar. Es decir, aún estaba (o se sentía) lejos de disponer de una cantidad que debiera blindar en RF o en instrumentos garantizados que no fueran susceptibles de sufrir las volatilidades tradicionalmente intrínsecas a las bolsas. Por lo tanto, salvo honrosas excepciones que han acertado la dirección de los mercados y que vienen ganando también en los mercados de variable durante el último medio año, la mayoría de los pequeños inversores/ahorradores sufren pérdidas consonantes con la volatilidad y descensos de la RV española y europea. Supone la evolución lógica de los patrimonios arriesgados a la que los mercados bajistas o inestables nos tienen acostumbrados en los últimos cincuenta años. Hasta aquí, lamentablemente habitual.

Sin embargo, el inversor medio, y ahora nos referimos al que dispone de entre medio y dos millones de euros de patrimonio total incluyendo inmuebles y empresas, está siendo el segmento más afectado de la actual crisis económica. Al menos eso venimos detectando a través de las consultas que recibimos en este blog, y también por los contactos con potenciales clientes de nuestro family office que estamos atendiendo desde antes de Navidad y sobre todo desde principios de este 2008.

Efectivamente, esta crisis de crédito ha mutilado inesperadamente el patrimonio de los que ya utilizaban para blindar buena parte de sus activos productos de inversión más sofisticados como fondos de RF, mixta o alternativa, o estructurados de todo tipo, por poner sólo algunos ejemplos. Productos financieros elaborados por financos con subyacentes a menudo vinculados de una u otra forma a titulizaciones de deuda y renta fija con ratings astronómicos. En estos casos, el espíritu y la intención inversora no era otra que la renuncia a plusvalías cuantiosas a cambio de un blindaje significativo del principal. El resultado de estas inversiones en los últimos meses ha sido desastroso a tenor de los feedbacks que recibimos vía blog y atención de nuevos clientes. Pero no sólo en porcentaje de pérdidas sino también en el daño patrimonial que han supuesto para sus propietarios. Las pérdidas en inversiones de renta fija o conservadoras no estaban en el guión de los activos aparentemente resguardados de todo riesgo para estos inversores medios. Y a pesar de que muchas se recuperarán con el tiempo, la reacción natural de muchos que han visto mermar aquello que no podían arriesgar es, lamentable pero comprensiblemente, la realización de pérdidas y atrincheramiento en depósito bancario. Comprensible pero no siempre conveniente.

Efectivamente, la actual crisis de crédito está llevando a muchos inversores que quisieron blindar su patrimonio, a deshacer posiciones perdedoras de renta fija para cobijarse en depósito bancario. ¡Considerando un mal menor la tributación inmediata por dividendos (sic)! Pero aunque sea difícil de entender en estos amargos momentos de pérdidas inauditas, hay vida más allá de la crisis de crédito y hay vida más allá de los fondos mixtos y monetarios perdedores o congeladores de dinero. Siguiendo con la estrategia de buscar oportunidades en épocas de crisis, actualmente podemos encontrar instrumentos de inversión en deuda corporativa no financiera con yields muy interesantes. El credit spread sufrido por algunas compañías debido a la falta de confianza del mercado actual y a la sequedad del mismo, supone una oportunidad de inversión a 5 o 10 años vista del vencimiento de algunas emisiones.

Las pérdidas en inversiones que nunca fueron planificadas para poner en riesgo partes vitales de un patrimonio, han hecho mucho daño a sus propietarios, y recibimos muchas consultas desesperadas al respecto. Es cierto que la actual crisis de crédito ha sido un verdadero Black Swan , pero también es cierto que en los últimos tiempos la clasificación de riesgo de los productos financieros era irreverente. Se encasquetaban (y se siguen encasquetando) productos financieros con porcentajes de RV radical (mercados emergentes) superiores al 30% como «mixtos conservadores». También hemos atendido consultas desesperadas de carteras con RFhigh yields y emergentes como parte del blindaje de sus patrimonios. Paradójicamente, la mayoría de problemas los estamos viendo en titulizaciones hipotecarias diversas (indescifrables para el mismísimo gestor/vendedor del mismo) que debían consolidar no sólo el principal sino también unas rentas que hoy se han visto muy mermadas, con la consiguiente problemática familiar que eso conlleva.

En definitiva, volatilidades de productos financieros de RF que superan algunas de RV y que han puesto patas arriba infinidad de estrategias patrimoniales temerarias y algunas más prudentes. Estrategias que fueron diseñadas bajo el interés exclusivo de las entidades bancarias y financieras de confianza de los clientes, que hoy buscan desesperadamente diagnóstico y terapia patrimonial a través de las consultas y entrevistas. No siempre tenemos el remedio milagroso, en absoluto. Como dijo un neumólogo a un amigo mio, fumador empedernido que dejó de fumar hace cinco años: «El mal ya está hecho». Algunos patrimonios tardarán muchos años en compensar el daño recibido en estos últimos 9 meses.

Asumamos, pues la nueva situación patrimonial, adaptémonos a la nueva realidad de esta crisis y planifiquemos el futuro aprendiendo de los errores del pasado más reciente. No caigamos en el común error de deambular patrimonialmente con bandazos estratégicos que nos impiden encontrar las oportunidades que toda crisis nos ofrece. Sólo así conseguiremos enderezar nuestro rumbo financiero al menos hasta que suframos otro Black Swan. Afortunadamente los cisnes casi siempre son blancos y debemos saber movernos correctamente entre ellos.

Almost a year ago, we introduced you to the concept of resilience as it applies to investors: The Resilient Investor. Leaving aside the income from work that clouds our perception of success or failure in our financial investments, I would like to emphasise the value of resilience in our investment life itself.

Our capacity to invest is obviously limited in terms of amount, but it is also limited in terms of time, and that is what we call our investment life. It’s hard to invest before the age of 20 or after the age of 80, and of course human nature means we have to approach it differently depending on which stage of this investment journey we’re at. But as we’ve already told you in Benchmark Personal and the Attorney General's Office on the subject of article by JMDV Even though it goes by the same name, there are almost endless variables that we need to manage throughout this investment cycle, without losing sight of our core objectives.

But there is another very interesting concept that we can and should apply to our investment journey, and which will help us improve our success rate over the years. Not only must we learn from our mistakes to turn our losses into investments, but even when the results are acceptable or successful, we must constantly strive for perfection. We can refer to this quest for constant improvement in our investment performance in many ways: the Cluster Effect, Kaizen (Toyota) or more philosophical concepts such as the search for the path or Thu of Zen Buddhism. In any case, this constant effort to improve our analysis and the decisions that affect our wealth throughout our lives will keep us safe from the greater dangers such as euphoria, panic or a lack of humility in the markets and in investing in general.

You can find more information about the app at Kaizen business-related content on the best website for discovering the contrasts, technology and modernity of Japan: Kirai, a geek in Japan. You will also find references to the economy before and after the bursting of the Japanese bubble here y here. I'd like to send our friend a quick hello from here/geek Héctor, whom I had the pleasure of visiting in his beloved Tokyo a few days ago.

The PGR must be constantly reviewed and adapted. At least once a year, we should update it whilst applying something akin to the classic approach to our financial decisions Shewhart cycle (Plan, Do, Check/Study, Act). A form of constant, ongoing quality control that will help us avoid costly decisions regarding our assets over the decades.

It goes without saying that we must adapt all of this to the current economic cycle. But be warned: if we enter a recession, we will have to adapt our protocols, strategies and decisions to a scenario very different from anything any of us has experienced before. The The Great Depression The 1930s are too far back in time, and what’s more, today’s globalisation means that the nature and course of a recession nowadays bear no resemblance to the one our grandparents experienced. However, this globalisation could also exacerbate the effect known in economics as Phoenix, that is to say, rising from the ashes, just as Argentina did and continues to do following its famous ‘corralito’, or Japan, as we can see in this documentary aptly titled Japan: The Phoenix (I recommend at least the first part). In any case, the Kaizen will help us to preserve and grow our wealth throughout our investment journey.

On Good Friday, 21 March – a public holiday and therefore a day on which the US and European markets were closed – news emerged from Standard & Poor’s: a warning of a possible downgrade of Morgan Stanley’s rating, whilst the Outlook negative rating for Merrill Lynch and a downgrade from stable to negative for the Outlook from Goldman Sachs and Lehman Brothers… Impressive.

They should be ashamed of downgrading the credit ratings of American investment banks when it is a foregone conclusion and public outcry had already been building for days, weeks or even months beforehand. Their downgrades With the benefit of hindsight, their incompetence or bad faith is laid bare, as they failed to warn the market of the actual increase in risk. Let us not forget that this is precisely their job; they are professionals in assessing the risk of companies, particularly investment banks. The reality of the market is so stark that their hopes that, without politically incorrect downgrades, things would return to normal have vanished. They have had no choice but to be exposed, belatedly and to their detriment. But their gamble was clear: they crossed their fingers in the hope that their complicity in the nascent crisis would be resolved within a few months as a false alarm and that things would return to normal. Not only the cost to them «politician’»It would not only have been zero, but they may also have been complicit in what I would call the largest and most serious bribery scandal in modern history. And that alleged bribery would have taken place whether the waters had returned to their normal course or, on the contrary, the harsh reality had exposed them, as has in fact happened.”.

We’re all familiar with the tricks that three-card monte players use to deceive and swindle unsuspecting passers-by and tourists at their makeshift street gambling tables. Every now and then, they let the hook hidden amongst the crowd wins the bet and collects what are purported to be substantial winnings. And that encourages the unsuspecting to place a bet, as it instils confidence in the betting system and the payout process. However, these indecent, after-the-fact re-ratings by S&P do not even rise to the level of a charade designed to lend credibility to its ratings, given that they are the latest in publicly acknowledging the increased risk at American investment banks. They have taken this step out of a sense of shameful obligation, not even out of professional decorum.

«Standard & Poor’s is the world’s leading provider of independent credit ratings, indices, risk assessment, investment research and data. We provide investors with the independent benchmarks they need to feel more confident about their investment and financial decisions.»

Standard & Poor’s.

However, credit rating agencies have not been solely responsible for the current credit crisis, as we noted back in August 2007 in The Ponzi Syndrome and the current crisis, but they are undoubtedly among the main protagonists of this drama. And these crude, underhand manoeuvres, carried out after the event, only serve to expose them in a most despicable light.

But the fact is that, in addition to the false sense of risk control provided by these rating agencies, organisations of the calibre of Société Générale o Credit Suisse corrupt and/or incompetent employees are pulled out of thin air who carry out opaque transactions o misjudge banking assets, respectively. In the case of CS, this «incorrect valuation» has forced them to revise their results for the last quarter and even to amend the figures for the 2007 financial year, which has already been closed, and, of course, the figures for 2008 to date. The financial market reminds me more and more of the Marx Brothers’ cabin: ‘More wood, it’s war…’ and also ‘two hard-boiled eggs’, although we’ll discuss Groucho’s view of the 1929 crash in a future article.

But it’s not all about the ground giving way beneath our feet: The skirmishes between scavengers to feed on the remains of the corpse of Bear Stearns (I’d recommend reading the FAQs for shareholders on their website – they’re well worth a look) are the best indicator of the a light at the end of the tunnel. The tantrum of Joseph Lewis who has been fleeced of 1,200 million $, losing 98 $ per share, and Deutsche Bank’s moves to bid for Bear are the best guarantee of the system’s solvency. Far more so than the credit rating professionals, who deserve to be made an example of.

We’ll have to start looking for other risk indicators, because the traditional credit rating agencies have lost their bearings and their sense of decency. Where’s the ball? They don’t even know, and what’s worse, they don’t care.

Assuming that a deflationary scenario is the most likely outcome in the coming years, let us examine how an economy in recession, such as Japan’s, has fared over the last two decades.

The first thing that might strike us as odd from a Western perspective bubble-maker The fact is that the stock market may not rise for more than two or three years. This truism is not so obvious if we stop to think about it carefully. From our recent European perspective, five, three or even just a single bad year is enough to recharge our batteries and set off another bull run on our stock markets. Even the Dow Jones has got us used to these timings cyclical since 1982, although we must bear in mind that in 1965 it stood at around 1,000 points, exactly the same as in 1982. But During periods of deflation or recession, the slump in the stock market can last so long that we should stop thinking of the stock market as a short- or medium-term investment vehicle. At least in domestic markets, or within the scope of that recession if it does not spread globally.

For example, here is the Nikkei itself, with its sobering chart from 1990 to the present day. In other words, over the course of 18 years, it has lost a staggering 701% of its value. A lifetime of investing. An exasperating recession that seems to be dragging on forever, with no end in sight.

Well, what has happened on the Japanese stock market is simply a reflection of what has happened in the country’s economy. Property prices, raw materials, wages and even a simple bottle of Coca-Cola have also been affected by this apathy or a gradual decline. Everything was more expensive 5, 10 or 15 years ago. Inconceivable for most of us, isn’t it? Many of you will remember that Japan used to be an expensive country, with the cliché of a coffee or soft drink costing almost 1,000 pesetas right in the centre of Tokyo back in the distant 1980s, when Spain was still ratifying its accession to NATO. Today, that drink would cost even less, between 700 and 900 yen. But the fact is that a Coca-Cola or a beer on the best terrace in Madrid or Barcelona also costs around 4, 5 or 6 euros. More examples: Nowadays, at any vending machine vending In Japan, a half-litre bottle of Coca-Cola costs 120 yen, which is 75 euro cents; and a standard set meal in any restaurant in Japan costs 6 euros, including a drink. You can even still find ‘everything for 100’ shops – yen, of course – meaning everything for 60 euro cents, or, in other words, everything for one US dollar. Obviously, the comparison with Spanish or European prices is stark, and if we compare it with prices in Britain and the pound, even more so.

Although this situation in Japan over the last 18 years may seem idyllic, deflation and recession can lead to extremely serious macroeconomic problems, as my colleague has already explained GFO in 'Inflate or Die'. So why has Japan managed to cope so well with this formidable deflation/recession, which has now been around for quite some time? How can we in the West deal with a hypothetical similar scenario? The answer is that Japan is a world away from Western ways of life, education and customs. To live with deflation for such a long period and maintain the health of the Japanese economy, one must have high productivity combined with a weak currency that allows for comfortable exports. Paradoxically, however, the Japanese population is quite thrifty (a logical reaction to a crisis) despite the fact that their banks do not pay interest on these savings in yen but do so in other currencies. And this fact does nothing to facilitate the revival of domestic consumption that the economy needs in order to grow.

If we compare these conditions with those found in Spain or Europe, the picture is bleak. Productivity is much lower and the euro is sky-high. Given this scenario, the ability to cope with sustained Western deflation over time gives pause for thought. The negative chain reaction scenario described by my colleague GFO It would indeed be devastating, but we must bear in mind the reality of the situation in Japan following 18 years of recession. Deflation in Japan does not reflect a nightmarish situation at all. What is more, day-to-day life for the average citizen is much more reasonable than the surreal excesses experienced in the late 1980s. Of course, we are not saying that it is a healthy or exemplary economy; the country and its companies face many difficulties. But we certainly see it as an example of how to tackle and survive prolonged deflation. Japan remains a member of the G7 (G8 including Russia) after nearly two decades of enduring the potential domino effect that could have irreversibly damaged the foundations of its economy (employment rate, productivity, businesses, banking, etc.).

We could therefore say that a deflationary scenario or a Western recession might bring things back to a more reasonable level after a period of lavish excess, but we should take a leaf out of Japan’s book if we want to avoid some of the terrible consequences that a recession brings. And that, dear friends, seems anthropologically very difficult for us Mediterraneans and Latinos in general.

For the time being, perhaps we should start to consider the idea that putting our money into equities may only be a sound investment in the long term. And when we talk about the long term in a recessionary environment, that timeframe can stretch far beyond what we are used to. It wouldn’t be a bad idea to start thinking a little more like short- and medium-term investors in emerging markets that are far removed from the deflationary scenario. Or perhaps to start thinking that our wealth growth should rely a little less on unproductive stock market speculation and a little more on corporate or employment income directly linked to productivity. I know this may sound like gibberish to many who are used to making easy money on the stock market, but in reality it makes perfect sense.

Although the outlook is likely to be a long one, we must not underestimate the ability of the world’s still-leading economy (the US) to emerge from the recession. Perhaps the Americans, despite all their economic and mortgage problems, will be able to overcome the deflation that seems to be looming over them (and us) much sooner than Japan. For the time being, unlike Europe, the US appears to be doing its homework: a currency at levels that facilitate exports, higher productivity than Europe’s (see chart below) and a cabin depressurisation which is forcing the Fed to cut $ rates to levels where mortgage holders and their banks can breathe on their own and take off the oxygen masks that have suddenly come down from their ceilings (central bank interventions and aid from the Bush administration).

It seems that we Europeans are destined to play the role of self-sacrificing carers for our American patient, although perhaps we’re just playing the part of incompetent fools. Never mind, the important thing is that the US overcomes this bleak scenario as soon as possible and pulls our old continent out of the mire. In the meantime, we should look to the only example of deflation/recession we have in our modern economy and learn how the Japanese weather and endure its effects.

We must realise that no one has said this will be a brief and fleeting affair. After this upheaval, nothing will be the same in the Western economy. It may be a long and arduous journey, but although many structures will be damaged, we will likely avoid a total collapse—at least of the vast majority of the system.

Goodbye, baby.

Our friend and prolific blogger JMDV has published Tuesday y Wednesday two summaries of the Bestinver Annual Conference. That is something that those of us who were unable to attend the conference are very grateful for, because Paramés It has, by its own merits, earned its place as a benchmark from which to learn, albeit always with a critical eye. Given the timing—coinciding with the Conference and JMDV’s summaries—this may not be the most opportune moment to publish this article, which, incidentally, had already been sitting in the «Drafts» folder since last Saturday. Or perhaps it is. In any case, here it is, just as I wrote it last weekend:

Thank you Fernan2 for always exercising good judgement in choosing the Spotted here and there 😉 Well then, through one of your links, I’ve come to this a brilliant article by Julio Cuesta (quant_Notes). I must admit, to my shame, that I hadn’t read it before.

To put it very briefly, Julio Cuesta (quant_Notes) is conducting an experiment Monte Carlo to put the successes of the best investment fund managers into perspective. In it, he demonstrates that, statistically speaking, given a sufficiently large sample, there will always be some fund managers who, purely by chance, will outperform the expected benchmark for a limited period. This is not down to any merit on the part of the managers, but purely to statistical chance. I recommend you take a look at it before we continue with our analysis.

That said, let’s start nitpicking about this experiment or at least put a few thoughts out there:

Let’s extrapolate this simulation – in which pure chance outperforms the market, given the large number of failed funds and fund managers – to other scenarios outside the stock market. For example, the probability of being happy with your partner for the rest of your life. Following the approach of the quant_Notes simulation, one might think we should consider the history of all couples as variables, rather than just those who have not divorced or separated. Only then would we have a clear idea of what, statistically speaking, lies ahead for a young person who is about to start sharing their life with another person. Following the same line of reasoning, an investor who, by contrast, places greater trust in one fund manager over another, would be the one inclined to think that a couple who have enjoyed many years of a happy life together must be doing something better than others who fell by the wayside.

It is hard to imagine that someone who has been through 5, 7 or 12 divorces or separations is just as likely to be happy with their partner until death do them part, and that they have simply been less fortunate than their friend, the perpetual monogamist. It is implausible that the only difference between couples who change partners as easily as they change their underwear and those who are stable in the long term is mere chance. I find it hard to believe that they are part of the so-called survival bias. The same could be said of someone who changes jobs or stays in the same one until retirement. We could find countless other examples that could be extrapolated in the same way. Is it merely chance, or are it different personal profiles and idiosyncrasies that determine the future trajectory of a relationship or a job? Similarly, is it merely chance, or are it different management approaches that determine the success or failure of an investment fund?

I am not saying that I do not partly agree with the conclusions of this experiment, but I refuse to believe that human ability is incapable of beating the market, any more than chance itself can. However, the strategies of successful fund managers can easily become obsolete and useless in the face of the rapid evolution and drastic changes our global economic landscape is undergoing. And that places greater responsibility on chance for the performance of successful funds – past, present and future.

The curious thing – and it is true – is that, given the vast number of fund managers and funds that are constantly being created and disappearing, the historical data that should enable us to separate the wheat from the chaff is simply too short. In other words, we should compare the results, taking into account this survival bias, against a t=100 or 1000 – that is, 100 or 1000 years of historical performance data – to be more certain that there is more to it than survival bias o survivorship bias in their successes. Five, ten or twenty years are, mathematically speaking, insufficient time horizons given the vast number of fund managers out there. The failure of the successful ones may simply be a matter of time, if their results are truly the product of chance. But even so, given that our lives as investors are finite and limited to a few decades at best, we need only happen to come across the «t» successful managers during that time. It should matter little to us whether time attributes success to good management or to chance, for as far as those of us who were fortunate enough to witness their «t’s of success are concerned, they were the best managers. Furthermore, investment environments are so volatile that supposedly successful management strategies will cease to be so over a time horizon extending beyond a few decades. Therefore, in reality, we will never know whether past success was down to management or mere chance.

We could say that markets have a component stochastic which we cannot ignore, but from which we must learn as much as possible determinism of some managers.

So, is it part of Paramés an elite group of fund managers whose strategy is capable of consistently outperforming the markets? Or, on the contrary, is it part of the survival bias, along with the rest of the global ranking of the best stock market fund managers? In my opinion, it is a genuine crack as a fund manager, even though his job requires him to rotate his portfolios, perhaps more frequently than he would personally prefer. But we must thank Nassim Nicholas Taleb that opens our eyes with its «Fooled by Randomness» and with «The Black Swan«. The first book, to put into perspective the historical success stories we are so fond of; and the second as an exercise in humility in the face of what the stock markets have in store for us from today onwards. Two works that will undoubtedly lead us – fund managers and the markets alike – to view one another in a new light.”.