Many readers may know me for my fundamental analysis background.
I like to think I was OK at it. I was head of a research process that resulted in our Quant Fund being rated as number one in the country several times. I had built and curated many quant models, which drove alpha for my clients.
I’ll be honest. As challenging and engrossing as it was, applying fundamental analysis had treated me well over the years, and coupled with the insights and power of quantitative analysis, I felt I had an edge. An edge on everyone else.
So when I decided to leave my employer in 2020 on the cusp of a series of endless consecutive lockdowns (I live in Melbourne – officially the most locked down city in the world!) and the subsequent COVID correction, suddenly, I was out on my own. I had no staff to command. My access to resources had disappeared and there I was, living off my life’s work without a regular cash flow stream.
This last point was incredibly important and an awakening. After having educated tens of thousands of retirees I finally really understood their predicament and it struck me now more clearly than ever before.
Preservation of capital is critical
I know that pullbacks in the market are normal. I also know, and believe, that they create opportunities and if harnessed correctly, create the potential for excess returns. After all, I was living proof of it.
A bit of personal history first.
When the depths of 2008-09 were formulating, I was literally living off bread and potatoes whilst looking behind every couch and in every drawer to free up as much capital as I could to put into the market. Not because I was struggling, but because I knew such large pullbacks are rare and often prove to be a once in an investing lifetime opportunity.
Of course, this mindset is much easier to adopt when you are gainfully employed or when there is a stream of inflows into your Fund which you can allocate to these value opportunities.
The “opportunity” doesn’t seem as obvious for those who are not gainfully employed and who have a large allocation to the market. Given the positive market, many retirees and those individuals without a weekly income were attracted to the market in a false belief that the market goes up all the time. They…
