A different take on growth vs. value
September 12, 2019
Capital Group video transcript: “2 risks to the current economic expansion”
Matt Miller: How do you think about big risks ahead? Do you have ideas on what could derail the economic expansion and the bull market that we've enjoyed now for so long?
Alan Wilson: Well, you know, I have lots of nightmares. In fact, if I'm not articulating nightmares, I'm not happy.
So look, I don't think it's accidental. There’s a lot of talk now about cyberwarfare. I think there's an argument that, in fact, we are at war. It's just a really cold war. Right? If the disruption caused with computers were as visible to us as the disruption caused by bombs, etc., I think we'd have a very different perspective even about some of our geopolitical foes, like Russia and China, in terms of just how routinely we are being attacked.
And so I think we are now so reliant on all of these tools that the fact that they're under constant assault in this cat-and-mouse game of protection, prevention, repair, etc., I guess I would be amazed if I make it through my entire investment career and there's not a major event of some sort along those lines.
Matt Miller: Right.
Alan Wilson: And that has all types of frightening ramifications, but that's one of them.
I think secondly — just a little more prosaically — a lot of what we have gotten used to over the last almost decade-plus now has been all of this money getting pumped into the system, right? And that has created changes in valuations. It's created a different patience profile for a lot of investors. I think a lot of the willingness to endure companies’ not making money forever has been because there's so much money floating around that that capital was able to go to those.
I think it's one of the reasons that when the Fed started talking about raising interest rates and began to raise them, you had this really violent reaction in the markets, right? We've kind of only invested in one direction for a while, and it'll be interesting to me to see what happens when we inevitably have to go in a sustained direction for another time period. I don't know that there's a lot of investment muscle memory out there these days to execute investing in a rising-rate environment.
Those are a couple at least.
Matt Miller: Stay with that for a second. There are a lot of younger people coming into the investment business who've only known kind of the bull market and this extraordinarily low interest rate environment. The fact that so many market participants have only seen one thing, does that create risk or opportunity for more seasoned investors like we typically have at Capital?
Alan Wilson: Well, it certainly creates risk, right? And hopefully one can then exploit any opportunity that comes about. But yeah, right? Everyone kind of has their experience window. In machine-learning terms, they call it your training data, right?
In fact, my recognition is that I have an algorithm. It was built on, again, this period that no longer exists. So I came up in an era when the internal combustion engine was the “be all and end all” in transportation.
Matt Miller: You were around in the earliest automobiles out there. (laughs) “There was whale oil when I was a boy. Those lamps were …”
Alan Wilson: (laughs) Not only that, but the largest bucket of supply was controlled by some people that thought they had, you know, a century's worth of resource to work with. I think if I were sitting in those rooms now, I might arguably say, "You know what? I don't know if we have this for another hundred years. Maybe it's for another 30." And it's not like it's going to go away. But in terms of a nice, steady line for a hundred versus maybe 30 and out, that might change my behaviors, right?
You're seeing all these behaviors of people and saying, “This is going to be really different now.” And that doesn't mean that it's an unsolvable problem. But I'm just saying that all of my investment history's been based on this model of the way the long-term energy outlook looks.
And so I think it's easier — and it's one of the great things about Capital, always having new faces coming in — it's easier to have new folks come in that don't have any historical data, look at this stuff brand new and just see what the behaviors are like.
Matt Miller: That’s all really interesting.
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