Just returned from the CFA Annual Conference in Edinburgh, Scotland this past week and wanted to get a few thoughts down to maybe crystallize my takeaways. If you’d like a play-by-play, the conference was live-tweeted under @CFAIowa and also the #CFA2011 hashtag. I have found myself returning to these feeds and am likely to reference them several more times as I pen this.
The last conference we attended was 2009, and the world was just six months past a blow-up that brought down Lehman, Bear, and (almost) lots of others. The world had undergone a major shift, a ‘phase transition’. That year, it was as if the attendees were in a dark room, grasping around for the light switch. The various speakers proffered various suggestions on the location of the switch, and attendees were still forming their opinions of what exactly had happened and what was likely to transpire in the future. All we knew at the time was that the market had gained about 50% off the bottom in just two months but it was far from clear whether it was sustainable.
In retrospect, as usual, some forecasters were more right than others and the events since make reflecting on it much easier -- had the world collapsed we’d see things much differently today. Instead, equity markets are ahead by double their March 2009 lows and the gains we’ve seen have proven sustainable thus far. In many ways, the light switch has been located.
From the vantage point of 2011, investors seem to have a good grasp of the major (known, large) risks to the world economy. The risks are that are well known today were more or less on the fringe at this time in 2009 – Eurozone economic risks, sovereign credit risks, debt, deficits, over-leveraged consumers, debt-fueled spending, the threat of rising inflation and interest rates, the rise of emerging markets, commodity supply and demand dynamics. Each was more or less reflected to varying degrees in the speeches and seminars this go round. There were a few ‘fringe’ views at the 2011 conference but nothing that was extremely aberrant. (You might have a guy who only likes gold, for example, but even this is almost mainstream today.) Whereas in 2009 the presenters spanned the “31-flavors” gamut, most came in vanilla circa 2011.
I will soon write another post on key takeaways – what might be gleaned from a contrarian viewpoint when 'everybody knows' the risks and issues facing investments. I think there are many broader implications for the investment profession as a whole. It seems clear that the powerful ‘institutional imperative’ will impede future performance even though managers, well aware of the potential headwinds facing market valuations and interest rates, believe they should not be 100% invested right now. Just because the risks are apparent doesn't mean everyone is acting to protect against them. Career risk, or The Risk of Poor Short-Term Performance - a major issue to investment industry credibility - sometimes leads managers do crazy things when viewed from a long-term perspective. Often, 'what's right' is not 'what's right now.'
Until next time!
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