When 2 of the World’s Largest Banks have Opposing Investment Views
Do you agree with one of them, both of them or disagree with both of them?
No. 1 What do you do?
Nothing. For most wealth & investment professionals, you might not have the financial tools and instruments or the access to do any of the following:
- Making a first move
- Hedging your risks
- Taking advantage of the opposing views
If you do, you might be uncertain of what to do or need approvals from your financial institutions or clients to make necessary changes.
In all, you are likely to be passive in your actions.
Making major decisions on investments and portfolio allocation is no easy task. Having access to information or having the knowledge to comprehend doesn’t necessary translate into effective actions.
This is especially true when market-makers such as governments or large institutions are at play.
No. 2 Who stands to gain?
There are some who thrive on uncertainties. They might not be right, some gets wiped out entirely … … but they are all in the game for the big bucks. Read More: 20 Traders Who Lost More than a Billion
- Institutional Investors
- Investment Banking
- Private Equity
- Hedge Funds
No. 3 How do they gain?
While most clients’ portfolio will remain unchanged due to passive investment strategies, Hedge Funds, Private Equity and Institutional Investors are constantly looking out for opportunities.
Hedge Funds can invest using derivatives (eg. options, futures) to bet on increasing risks (long volatility, credit-default swaps). Private Equity can jump into buying distressed assets of listed / private companies that needed sudden cash call due to falling stock prices or the impact of a long-term economic forecast from the largest 2 largest banks.
Investment Banking units that underwrite activities in the financial markets can issue more derivatives to Institutional Investors / Hedge Funds / Private Banks / Companies to hedge or leverage their positions.
No. 4 What kind of returns do you think they generate annually?
5% or 12%? Perhaps 25%? Every firm’s investment objectives and time horizon is set up differently. Institutional Investors and Private Equity tends to have longer investment horizon, but the type of investments they get into differs greatly.
What do you think is the returns of Institutional Investors, Private Equity and Hedge Funds?
- Around 5%
- Around 8%
- Around 12%
- Around 15%
- Around 20%
- Around 25%
- Around 50%
- Around 75%
- More than 100%
No. 5 What would your clients do?
Clients would likely be unsettled if they happen to catch the news, and would promptly follow up with the question: ” is liquidating all investments, take profits or cut loss. What would be the most sensible thing to do? ”
With risks, comes rewards. What if the 2 largest banks are wrong?
What would you do when 2 of the world’s largest banks have opposing investment views?