Investors thought they had entered the year with complete clarity. US exceptionalism being just one of those factors. Last years winners would be this year’s winners etc. Sure, there would be change under Donald Trump’s presidency but no-one forecast what has happened and would happen and for investors, to use an excellent analogy the cockpit has gone dark.
It’s a coincidence that the last time we were in such a period, was as we entered the Covid crisis. Almost exactly five years to the day, when Governments were in unchartered territory, there was no visibility around anything. There was fear, doubt and uncertainty about the global economy that was going to last way beyond the lockdown phase. Sounds familiar.
That, in turn meant that asset prices – and equities in particular – were far more susceptible to news flow and cash flow certainty (or lack of) than at any time in recent memory, any cash flow forecast models had to have a strong statistical starting point based on recent experience but also need to be able to adapt dynamically to real world information as it becomes available.
Right now, as then, no-one – the companies themselves included – had much of an idea about their demand prospects, margins, pricing power or supply chains beyond a simple, first order estimate.
The bottom line is that, as we discussed in March 2020 in a previous edition of when “the cockpit goes dark” investors lose sight of their comfortable information set of quarterly earnings reports, analyst updates and corporate guidance, stock selection becomes challenging to say the least. However, stock selection will become the key differentiator for active managers over the coming 12 -18 months so a robust estimator of future cash flows and implied (risk adjusted) expected returns will be central to the investment process.
This is where Libra – and our proprietary asset pricing model, Apollo – comes in. What Apollo offers is a continuous, systematic, asset pricing methodology for global equities that updates over 8000 stocks daily and provides exactly the range of forecasts and measures of risk uncertainty that will be required in order to make considered investment decisions in the months ahead.
As real time data emerges, the Apollo model incorporates these data points and updates its forecasts accordingly. Measures of risk adjusted return are provided alongside price dynamics of momentum and volatility in the form of signals and datasets as well as graphically on an interactive online platform. We are all investing in a very different world currently and hereafter and it is important to have the right equipment to help protect investments as we do so. Welcome to the world of Apollo.
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