The best lines of the night

It's difficult to overstate the power of great one liners. Go see a movie, a comedy act, or a Broadway show, and I'll bet the thing that will stick with you long after the event is that memorable quip, punchline, or metaphor. Much to the chagrin of my wife and kids, I'm still quoting lines from the movie Airplane! ("Surely, you can't be serious?...")

But my family should be grateful I'm quoting movies, when I could just as easily quote the famous one liners of great financial thinkers. One of the most impressive traits of Warren Buffett is his ability to take complex finance topics and boil them down into easily accessible allegories. How do you explain the risk of overleveraged companies in a booming expansion? Buffett responds, "You only find out who is swimming naked when the tide goes out". How do you think about finding stocks that are truly underpriced? "Price is what you pay; value is what you get".

Along these lines, I was fortunate enough to moderate a discussion with members of the UBS Research Advisory Board (RAB) recently. The RAB is a group of thought leaders from firms across the industry that provides guidance into our CIO investment process and insights for UBS advisors and clients.

At the event, we were joined by several RAB members, including: Kristina Hooper (Invesco); Lyle Fitterer (Wells Capital Management); Joe Harvey (Cohen & Steers); Colin Moore (Columbia Threadneedle); David Kelly (JP Morgan Asset Management); Kearney Posner (Lord Abbett); and John Tousley (Goldman Sachs Asset Management).

We asked three questions: (1) what are the biggest risks today; (2) what are the best investment opportunities; and (3) what single piece of investment advice would you give.

So let me share some of the "best lines of night".

Regarding risks, Kristina noted that "tariffs are like bacteria in a petri dish". A great framing of one of the biggest market risks, protectionism. Within fixed income, Lyle suggested that investors should upgrade credit quality in portfolios, because "when it turns (the credit cycle), it turns quickly". Finally, Joe also expressed concern about late cycle dynamics in the bond market, noting that "tightening cycles historically have created accidents". And he's right. It's no coincidence that both the late 1990s tech bubble, and the financial crisis last decade, occurred after an extended period of rate hikes from the Fed.

Turning to opportunities, Colin sagely suggested that "it's worthwhile looking for secular trends". We often think of markets in terms of regions, size and sector, but secular growth opportunities in cloud computing, automation and robotics and e-commerce cut across traditional categories.

As for parting advice, David warmed up the evening with solar references by noting that investors should "make hay and fix the roof while the sun is shining". Interpretation? That investors should stay invested in stocks as the expansion continues (make hay), but consider preparing for the next downturn (fix the roof) by ensuring portfolios are properly diversified.

Kearney and John are new members to the RAB this year. Kearney reflected that "liquidity and yield are not costless" — a good reminder to always understand the risks of any investment. And with the midterm elections less than a month away, John told the audience that there is not any statistically significant relationship between the makeup of Congress and equity markets. Or, in other words, "express your political views with a vote, not a trade".

Those will be lines that I remember…"and don't call me Shirley".

By Jeremy Zirin, CFA, Head of Equities Americas

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