“As a year-end message, I would like to suggest that we try to avoid the representation bias. It is not because we had a difficult period for a certain asset class that the subsequent moment will also be like that. On the contrary, the economy is cyclical, and it is always better to buy cheap (when it fell).”
“Sunrise doesn’t last all morning
A cloudburst doesn’t last all day
Seems my love is up
And has left you with no warning
But it’s not always going to be this grey
All things must pass
All things must pass away”
George Harrison — “All Things Must Pass”
Last Day One of 2021. The year was tough.
Widespread losses for the Stock Exchange, at an intensity little captured by the Ibovespa, which is so dependent on banks and commodities. Small caps were decimated, quality stocks, which could be a refuge for any investor, brought many negative surprises. WEG, Magazine Luiza, Natura, Rede D’Or, B3… who would have guessed?
Equity and multimarket funds suffering successive redemptions, in a perverse cycle. The quota drops, the investor gets upset and withdraws. The manager is obligated to sell to honor redemptions. The quota drops more. We go back to the beginning. If we were to argue, maybe this would be the time for the shareholder to apply more, when things have fallen and, therefore, are cheaper. Who am I to change human nature? If even Magellan’s average shareholder lost money, why would it be any different here? “See how the quota is going up. This Peter Lynch is a genius. I’ll apply after the climb (when things are expensive).” “Oops, now the quotas are falling. Better get it out soon. This Peter Lynch is an idiot.” We buy high, we sell low, subverting the elementary logic of finance.
Real estate funds also in red. And the supposed refuge of fixed income? Loss too—in nominal terms, of course, you even made money if you hid in a post-fix, but lost from inflation; all other categories punished the investor by name as well.
There are several possible explanations for the difficulty of 2022. Some of them are true, others are mere fallacies of the narrative, attribution of causality where there is, at most, correlation. They are known to the three readers of this newsletter or even to those interested in newspapers.
Today I offer a different perspective. The year was particularly challenging because it had no identity. And the lack of identity, the inability to recognize in oneself characteristics that distinguish oneself from the other, catalyzes acute neuroses. If there is no identification with a clear self-image, absolutely everything is questioned. It can be commendable in the light of skeptical discovery and even represent an antifragile shock for further improvement. But the complete absence of identity implies loss of reference, an extreme form of uncertainty and impossibility of perceiving paths. If I don’t know who I am, how can I choose? For those who don’t know where they are going, any path will do.
In investments, excessive uncertainties have the practical consequence of increasing risk premiums. In other words, when in doubt, the investor demands more excess return to buy a certain asset, which can only happen if it becomes cheaper.
To a large extent, this year represented the extent of the ills of 2020, with the Covid-19 crisis penetrating the new calendar sheet. First, with its restrictions on mobility and, therefore, on economic activity. Then, with the need to give a credible trajectory to the fiscal situation, as a reaction to the great expansion of spending in 2020 – even Keynes defended public spending to react to the lack of private demand, which, in a second moment, would be compensated by a period of savings public. There is no miracle of the widow’s money multiplication in the General Theory. But it seems that the class only read the first part.
At the same time, 2021 also anticipated the 2022 electoral debate prematurely. We were unable to move forward with reforms, we exceeded the spending ceiling and adopted a populist posture because the future election is already in sight. And as everyone is afraid of extremism, on both sides, here we go to live this year what should be reserved for 2022. We stopped the country in fear of what could be the election. The most curious thing about this whole story: if you talk to big investors, local or international, you will notice rare cases of real concern about the new government. Most responses will point to disbelief in major disruptions and even some predictability, as incredible as it sounds. The fashion for speech: “We already know the actors at play. There is nothing new. This election will be decided at the center and such a government will be elected. A fiscal adjustment in 2023 is inexorable, regardless of who the new president is.” But, when in doubt, a risk premium is charged. And the Brazil kit melts.
We squeezed the year 2021 so far between 2020 and 2022 that it condenses matter forcing it to expand. It took 12 months that felt like a decade.
If the hypothesis is valid, perhaps it is implicitly loaded with a message of hope. The year 2022 brings a real event important enough to call your own. In addition to the concreteness offered by the elections, the year also marks the 200th anniversary of Brazilian independence and the 100th anniversary of the Modern Art Week, which are important elements of the foundation and of the national identity. What was missing for 2021 is left over in 2022.
Perhaps it is time to remember, referring to independence, the tendency to “agreements within the home (or at court)”, to the detriment of true revolutions and ruptures; the advanced liberalism of the first formally Brazilian Constitution of 1824; a certain conservatism, such as that advocated by Burke when defending the American revolution, that sometimes it is necessary to advance to preserve institutions and avoid the worst. At the same time that we remember the anthropophagy that is such a mark of national identity (or lack thereof), the habit of swallowing everything that comes from outside and digesting it in our own way. The global economy, although slowing down, is growing at a good pace, above potential, and this is good for commodities. Are we finally going to digest the international bull market and introduce it to tropicalismo?
As a year-end message, I would like to suggest that we try to avoid representation bias. It is not because we had a difficult period for a certain asset class that the subsequent moment will also be like that. On the contrary, the economy is cyclical, and it is always better to buy cheap (when it has fallen).
That in 2022 we can face life with an open perspective, without losing our responsibility. A defense just beyond Stoic apathy. A fati love filled with a spirit of adventure towards life. The preservation of some hope, without this being confused with false illusions or naive expectations.
What would life be like if we didn’t face it in all its fullness and possibilities? Is this not, after all, the transposition to diversification and convexity?
Brazil, as a nation, has been like this for 200 years. And it seems more likely that it will continue that way in 2022, with its vices and virtues.
Source From: Moneytimes
I am an author at Global happenings and I mostly cover automobile news. In my time working in the automotive industry, I have developed a keen interest in the latest developments and trends. My writing skills have also allowed me to share my knowledge with others through articles and blog posts.
