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Investing in a crisis | Part two

Published on 23/03/2022

In the the first Investing in a crisis blog - we covered the possibilities or probabilities of an extreme outcome, and assigned odds or probabilities to certain major outcomes.

If you haven't yet read that blog, you can find it here.

In this blog, we are covering the 10%, wherein the world does not end in World War 3.

So if we are saying there is a 90% chance of there not being WW3, what do we think that means?

This is hard, right? We don't think anyone believes in moonbeams and fairies as the alternate reality.

So let's make it simple.

1/3: a world in which the after-effects of the Russian invasion fade within 12 months and we return to a focus on the post-Covid normalisation, and market cycles.

1/3: a world in which we see Russia undergo a huge change, and open up — reflective after its invasion, and a move towards a greater harmony.

1/3: A world in which the effects are ongoing; Russia maintains an aggressive stance, and China increasingly plays a role — with the gravitational centre moving east from Washington DC and the world slowly moves towards a new multipolar axis.

You might say, well, I can see all of these things happening, or none, or bits of each. That's fine, the process is the same.

So we have a 10% chance of WW3, in which there is:

  • A 3.33% chance of a return to ‘normal’.
  • A 3.33% chance of a more positive outcome.
  • A 3.33% chance of a more complicated outcome.

But how on earth do you position your portfolio for this?

This is reasonably simple, in that a few weeks ago this was the case.

We had interest rate concerns, a worry about global growth following the pandemic, and in the west, a change in central bank policies.

Markets, we believe, would remain volatile as we move into interest rate hikes and pressure might continue to be applied on high growth technology names, with companies' stability of cash flow becoming increasingly exciting over growth prospects.

In this world, you would be looking for companies that contain a balance of growth, but are more selective, while increasing your weightings towards the more ‘boring’ companies, who make and sell things for a profit.

You will need to decide how far the hiking goes, and do central banks get to target rate, or does the pressure on the consumer become too much to bear hurting the economy as funds are directed away from discretionary spending towards covering living expenses (mortgages, credit cards, car payments).

To help you in this process we will release a Curation of companies to look at that might work in this scenario - check the Discover page in the Upside app to find it.

A note to end on: Sometimes the best investments are ones you may never personally see a return on. There are a number of ways we can help support those caught up in the unfolding humanitarian crisis - both financially by donating money, as well as donating clothing and bedding or writing to your local MP. This article from the BBC highlights some of the organisations offering help.

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