Author: Stefan Lundbergh
As market fragility increases, it becomes more important for investors to consider how portfolios would weather business cycles, financial bubbles or even a perfect storm. In most cases there is a need to make portfolios more robust by broader diversification and have enough convexity to protect against market meltdowns.
Using the analogy of the seasons – Stefan Lundbergh’s paper draws parallels on how the markets work in practice, using business cycles and challenging environments from a practitioner’s view.
As with the unpredictability of the weather and natural disasters – the same could be seen as true of the markets. Just as we know an earthquake is difficult to predict, but we know that they happen – the same is true of financial crisis. We don’t know when or where it will hit or how big the impact will be, but they do happen so preparation is key.
The paper also outlines a thinking framework – highlighting key questions to consider when making decisions – looking at the difficulties in trying to see what is going to happen in the future especially as there is no single model that will help.
Listen to Stefan’s outline some of the main themes from his paper.
Read full paper as published by CFA Society Netherlands.