How to anticipate a Black Swan?


In his book about the Economic Consequences of the Peace, in 1919 John Maynard Keynes quoted “what an extraordinary episode in the economic progress of man that age was which came to an end in August 1914”. It came to be well known by recent historians the fact that one of the causes as well as consequences of conflicts and wars are those related to extraordinary economic instability often followed by economic growth. War against Covid-19 is no different. Consequences have been devastating but there is no doubt a new society order will emerge so economic and business opportunities are awaiting the end of this war.
Meanwhile, current uncertainty is breaking down economies all around the world. There is no doubt a global recession is underway and no country will be able to escape out from higher unemployment levels, social discomfort, new indebtedness, and of course macroeconomic decrease in output. In order to survive, many companies will require sets of taxing breaks and stimulus, thus, depending on the strategic relevance of each industry in each country, we will be able to see a wide range of taxing policy creativity which might help economies in the short term but probably with the cost of trading off the welfare of future generations.
Still the nature of the upheavals the covid-19 black swan brought are being a catalyst of inherent changes the world has been going through lately, specifically those related to energy and digital transformation. The unknown unknowns are being unveiled, corporate values are experimenting not only the common generational switches but also the new operating challenges which require companies to focus on what is really fundamental for all stakeholders. Somehow the pandemic has accelerated a profound change that is still unknown even for the most sophisticated investors and algorithms. For instance, Renaissance Technologies, one of the most successful quantitative hedge funds in the world with the best average returns recorded in the last 30 years (1988 – 2018 average annualized net returns after fees of 39.1%) even largely beating the market with 2-digit returns in years like 2001 after 9/11 chaos or the subprime crisis of 2008, is this year figuring out new algorithms that incorporate the new unknowns in order to not finish the year with reds in any of its funds for the first time ever.
So the opportunities here are not related to the answer of the common wonderings on which will this war end, or when will the uncertainty stop and economies can get back to “normal”. Opportunities will arise from the answer to the question of what is fundamentally inherent to societies nowadays.
No doubt the next black swan for economic opportunity will emerge after the war against Covid-19 is over as history has thought us. The good news for investors around the globe is that it seems the next swan looks more grey than black. Operations within standardized markets and OTC transactions might accommodate quickly to the new set of values that are being sharped right now. Thus this might bring a whole array of opportunities within the M&A and consulting industries. Companies will need new arrangements within a changing environment in which selling and buying decision will have to be taken faster than usual. This way seizing these opportunities and understanding the sharpening new corporate values before it is too late, is the next challenge. After all, as Keynes appointed “successful investing is anticipating the anticipation of others”.
Santiago Herrera Triana – Corporate Finance Partner, Colombia