Defense, offense, and survival

In the recent market, the correlation of asset classes has been higher than before the troubles began. Panic activity – both positive and negative, defensive or offensive – drives indiscriminate selling or buying, in favor of liquidity or fear of missing out, respectively. And in a period of almost complete uncertainty (nobody knows anything, not really), there is likely to be panic on both sides.

In such a scenario, investment portfolios may be deceptively undiversified, and portfolio managers are deceptively like business CEOs, whose enterprises are portfolios of one and who don’t have the luxury to hedge, balance, or rebalance, and who direct or at best redirect strategically, in essence all-in on the position. In such an environment, the wisdom of each can be imparted to the other, as business building is also an investment allocation, and now investment allocation, undiversified, shares qualities with business building.

One way to read the latest memo by Howard Marks, an investor, is with a view to business strategy and enterprise. As portfolio managers with an asset class of one – the business builders and protectors, the operators and planners – find themselves in the same position as the more conventionally defined portfolio managers. The questions and approach to building, operating, planning, and protecting, will be in many ways the same, with a backdrop of almost complete uncertainty.

Here are some things that Howard Marks has to say…

In an earlier post here, the argument was made that historical value analysis is most useful with a view to transitional periods and transformation…

When would you have bought or sold?

… which are the true long-term investment opportunities.

In the currently transformative and transitional period, the strategic decision is more directly tied to and limited by funding and resources, which are always interlinked, only now, more constrained and much tighter. For managers of a portfolio of one, the equilibrium between defense and offense is thus also an equilibrium between growth and survival, in the near term as well as the longer term, where the unknowns are now not vastly different.

(Related post from an earlier period, now perhaps more urgent: The question and the answer budget.)