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Jacob Mitchell: Lessons from the Global Financial Crisis
There’s a generation of investors that have been somewhat scarred by the GFC.
Personally, I got through the GFC in pretty good shape, we had good short protection. We were shorter some of the weaker REITs, we knew they’d been very dependent on what was going on in credit markets. Some of them were just taking on too much leverage.
What prepared me well for the GFC was the eight years prior, working on different industries and just looking at how credit markets were evolving. For example, loan origination – the credit assessment and ownership had been unbundled through innovation. We then fully understood the CEOs were then allowing the market to bundle very low-quality exposures into AAA-rated paper.
We weren’t sitting there saying, “wow what’s going on?”, we actually knew what was going on – we could see it.
We weren’t exposed to US financials and we had very moderate exposure to financials anywhere in the world. We had significant shorts that were very much credit market sensitive in the books, which gave us the protection.
But, you don’t want all your Alpha to come from one macro event, so I think the lesson for me as an investor was: You have to think about tail risks and how to protect investors when they become real. Unless you’re doing the research in a pro-active way, you’re not going to be ready.
You also got to think about what matters over the long term. What matters over the long term is being long on great companies, generally in areas of the market that are growing, backing management teams that can execute well and businesses that inherently have barriers to entry and can protect their position.
Those companies are rare. You got to have appropriate focus as an investor. 80% of your time should be spent on identifying those companies, 20% thinking about macro and tail risks. If you keep that balance it will stop you from being too macro at the wrong time.
Video: The Australian Investors Podcast – Global Financial Crisis Lessons
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14 October 2019 Jacob Mitchell, Antipodes Chief Investment Officer
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