The Black Swan, Gold and the Stock Exchange
In recent months there have been results at the polls (US elections, referendum of Brexit) that have broken all the forecasts. Are they Black Swans?
It is known in finance Black Swan to an event that has a very low probability of occurring, but that if it takes place causes devastating effects, as for example was the earthquake of Fukujima, that caused a tremendous loss of lives and enormous material damages, at the same time swept over those financial investments with overexposure in Japan.
The election of Donald Trump should not be considered a Black Swan event and in fact the financial markets have received with relative tranquility, mainly, the result of the elections in the USA, perhaps because once surpassed the enormous surprise that supposed the English yes to Brexit, where it is more appropriate to apply the definition explained, the market could anticipate that surveys fail enough, as happened again in the US.
However, in Black Swan a stringent fulfillment of Trump’s electoral promises can be transformed as well as a trade war unleashed by an abrupt exit from the European Union by the United Kingdom. Add an autarkic policy on the part of the Trump administration, a rampant deficit by populist spending policies, a trade war with China that, on the other hand, is the largest holder of US Treasury bonds, a massive and immediate deportation Of immigrants can give us this time a scenario of instability in the markets, at least in those of the emerging countries. The unknown to solve is if you do not expect a soft Brexit or a soft Trump.
The most secure long-term value.
How can you protect yourself from Black Swan phenomena? Gold has always been considered an investment refuge in convoluted political moments, in times of hyperinflation, and so on. However, García Paramés, one of the best Spanish fund managers, gives us a different and well-reasoned view of what is the safest asset and, according to him, is none other than long-term investments , In real assets, in shares. Gold considers it preferable to monetary assets, but less advisable than a portfolio of well-managed companies bought at a good price.Francisco García Paramés recently published his first book «Invirtiendo a largo plazo» (Deusto SA Ediciones)
This, the preference of actions as safe values, is one of the surprises that the theory of the Galician manager holds. Another surprise is the way they approached the investment. As a student of economics at the Complutense University came a copy of Business Week magazine and what attracted him to that example was the appearance of his admired Pat Ewing, a basketball player who shone in the 80’s on the cover. Once the article was read, he continued with the rest of the magazine and became interested in finance.
Approach to the Austrian School.
His approach to the Austrian School (von Mises, Hayek, Menger ..), as in my own case, also did not take place at the University of Madrid, which also studied (being a professional basketball player also admired Pat Ewing). In those years, with the exception of th of History of Economic Thought cathedra, masterfully led by Pedro Schwarzt, the core of the teaching was based on the Keynesian model, I do not know whether it is easier to explain, or by pure ideological conviction of the faculty. While most economists generally use economic models and statistical methods to model economic behavior, Austrian School economists argue that they are imperfect, unreliable and insufficient ways to analyze economic behavior and evaluate economic theories. The Austrian School defends an individualistic methodological approach to economics based on the study of human action. This is key to understanding the investment philosophy of García Paramés.
The BMW example.
Within the luxury sector there is a company that can be considered the one that has given more success to the investment strategy of García Paramés. BMW is a family-owned company, with very low debt, with a high brand prestige that allows it to obtain margins far superior to its competitors, advanced in technological research and with a strong positioning in the growing Chinese market. While the company’s shares were quoted in 2007 at EUR 35 euros, García Paramés’ team valued it at EUR 100. Considered within a cyclical sector such as the automobile sector, managers used downward swings to take positions at a good price and get a Revaluation of 75% in 9 years. In short, highly recommended the reading ofInvirtiendo a Largo Plazo.
Disclosure: The Luxonomist is not responsible for the views expressed in the article. The text has been written freely expressing their own ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.