“Work, Work, Work, Work, Work, Work”

There are companies to follow, clients to call, economic and geopolitical developments to track, and portfolio adjustments to be made. But variety is one of the best things about this job. Heck, there are even blogs to be written! Each of these aspects of the job is important and it’s a little senseless to rank order them. So, I’ve been hopping from one to the other and trying to make the best of a busy time. And I’m not complaining, it is certainly better than the alternative.

However, one activity that does get marginalized in times like these is the time for thoughtful reflection. There is a tendency to allow the tasks of a busy office to eat up your day. But, stepping away from these distractions is a necessary requirement of making informed and thoughtful investment decisions. Reading the business periodicals, interacting with other professionals, and getting out and observing what’s happening in the world can seem of marginal incremental importance. But it is almost always of value to our business and the decisions we make.

I was reminded of this recently upon completing a couple of one day business trips outside Ontario and attending the Grant’s fall conference in New York. There was time in airports and on planes for reading, and there was exposure to points of view and insights a little different from what is available in the echo chamber of Bay Street.

Over the years I’ve mused about going to the Grant’s conference and I think my partners finally got sick of me talking about it and just told me to go. I’m glad I did because Jim Grant does a great job of bringing together some of the brightest minds in finance. This fall the conference included Bill Dudley, former chair of the New York Federal Reserve, and Seth Klarman, a legendary investor sometimes labeled “the Oracle of Boston”, in homage to Warren Buffet, “the Oracle of Omaha”. The conference was a great opportunity to step away from the details of the business and reflect on other important matters necessary for investment success in this crazy world.

On an issue that is close to my heart, Peter Chiappinelli of Boston-based Grantham Mayo Van Otterloo (GMO) spoke insightfully about the current fiduciary challenge investing client funds in the bond market. Currently, many managers have chosen to play along with the trend – bond yields are falling, the duration of the benchmark indices is lengthening, and the credit quality is declining. Although future returns will almost certainly be negative in real terms, many a manager’s allocation to bonds owes more to the composition of the index than to the manager’s forecast. In contrast, if you believe, as GMO does, that bond yields will provide low to negative returns in the years ahead, and that the erosion of credit quality will eventually end badly, a manager who takes fiduciary duty seriously will have a portfolio that looks very different than the popular benchmarks. But that manager is assuming what is best described as “career risk” for running against this trend. That’s the uncomfortable position GMO finds itself in, and we at Nexus know the feeling well.

One key takeaway from the conference was that the speakers were not in agreement on how the world will unfold and what, at this juncture, an investor should do. However, the best presentations demonstrated a curiosity about the future and an optimism that seemed a little out of step with some of the “end of world” worry that seems ubiquitous these days. Looking for opportunities, managing the risks, and staying on top of the big trends are what occupy the minds of these practitioners. They are not devoted to the timeline of the impeachment proceedings, the latest Brexit deadlines or, it seems, many other geopolitical risks. For a firm like ours, that declaims predictive ability, this was not only a good reminder of the importance of an independent-minded, bottom up research process, but also comforting music to my ears. Now, time to get back to work!