He recounted his much publicised chess encounter with Deep Blue – IBM’s intelligent answer to the ultimate chess playing machine at the time. Kasparov’s experience in defeat was quite mentally and emotionally devastating given that he had never before lost to anyone (human or machine). Looking back he was able to share interesting points of view and learnings. Kasparov contends it was not quite because Deep Blue was ‘smarter’, perfect or had the ability to perform huge calculations swiftly that eventually led to its victory. It was specifically because, within a closed system, Deep Blue was able to make fewer mistakes than he did – a very important distinction. As the command of data and technology continues to redefine our industry I think Kasparov’s experience draws worthy attention. Firstly, it is important to understand that our capital markets (listed and unlisted) are very much open and fluid systems that are susceptible to disruption.
Globally, the year ahead promises to be extremely eventful and in the first few days of 2020 geopolitical tensions are already on the rise in the Middle East. It now is quite certain that Britain will exit the European Union following the resounding mandate provided by the electorate in their recent elections. The upcoming US elections and political posturing are likely to cause turbulence in the stock markets. Central bankers have meaningfully shaped capital markets in 2019 despite the uncertainty provided by the trade wars and the Fed’s balance sheet continues to swell again, owing to calming repo markets. Slowing economic growth and supportive central bank interventions are not likely to sustain capital markets in the same way as they have in 2019.
Our own domestic economic woes continue to be shaped by rising debt to GDP, dismal unemployment figures and falling business confidence - not to mention our ongoing battle to keep the lights on. Policy uncertainty around land expropriation and the NHI (National Health Insurance) continues along with errantly run state owned enterprises. Time is definitely of the essence with the 2020 Budget statement coming soon and a possible ratings downgrade imminent. These concerns should hopefully be quelled by ongoing and substantive structural reform.
In my view, given this unprecedented uncertainty and challenges, investment success in 2020 will hinge on limiting our mistakes and adverse outcomes even though we are not operating in a closed, well-behaved system. In making fewer mistakes and lessening our exposure to adverse outcomes there are three key spines that should be instructive in our approach:
It is important to understand how we make investment decisions and the principles that pro-actively underpin them. It is reassuring that our own fiduciary duties are largely served by sound governance already in place. As diligent and ethical managers and custodians of our clients’ assets we place a high premium on good governance as a firm and necessary foundation. At the outset of the year we recommit ourselves to principled and strong governance protocols that support our investment decision making.