A careful analysis of past recessions shows that the technology, industrial, and consumer discretionary sectors are consistently among the worst performers late in the business cycle and through recessions. In contrast, health care and consumer staples hold up the best. Importantly, if you are going to make these changes, you need to vigilantly monitor the recovery, as the performance is exactly reversed once the economy turns around.
As a part of my series about “Investing During The Pandemic”, I had the pleasure of interviewingJan Szilagyi.
Jan spent most of his career managing global macro strategies, starting with Stan Druckenmiller at Duquesne Capital, and most recently as Co-CIO at Lombard Odier Investment Managers in New York. He is now the CEO of Toggle, a financial technology platform built and used while he and his co-founder were actively managing global macro portfolios. Jan graduated Phi Beta Kappa from Yale with a degree in mathematics, and completed his PhD at Harvard under Ken Rogoff in international finance.
Thank you for doing this with us! Before we dig in, our readers would like to learn a bit more about you. Can you tell us the “backstory” about what brought you to the finance industry?
My friend’s father worked in the hedge fund industry and, while I was starting the first few weeks of the Economics PhD program at Harvard, he invited me to come down to New York and meet his boss, Stanley Druckenmiller, the CIO of Duquesne Capital. I took a Delta shuttle flight the following day (a Friday) and had what amounted to a 5-minute conversation with Stan. I left the building and before walking 5 blocks I received a call: I was hired. I haven’t looked back since.
Can you share with our readers the most interesting or amusing story that occurred to you in your career so far? Can you share the lesson or take away you took out of that story?
I was uneasy when I started the job: I had been reading horror stories about the awful experiences junior guys were having across financial institutions. On my second day I remember sitting down at my desk, no later than 6:15 am, when Stan came into the office carrying two Starbucks coffees, one of them for me. Here I was, two days into my job having a coffee brought to me by a global macro legend.
Are you working on any exciting new projects now? How do you think that will help people?
At TOGGLE we have adopted the mantra “invest rationally, not rashly”. We are democratizing access to financial analytics, and revolutionizing the way investors look at data, allowing any investor, whether professional or retail, to make informed investment decisions. TOGGLE’s AI portfolio assistant harnesses the enormous power of cloud computing and machine learning to turn terabytes of data into actionable investment insights.
None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?
There have been a number of people who have had an influence on my professional career but Druckenmiller stands out. He gave me a start in the industry and supported me at a number of critical points in my career, including most recently when we started TOGGLE. He was the first to offer encouragement to take the plunge, and ultimately financially backed the endeavor as well.
Let’s shift a bit to what is happening today in the broader world. Many people have become anxious from the dramatic jolts of the news cycle. The fears related to the coronavirus pandemic have understandably heightened a sense of uncertainty and loneliness. From your experience, what are a few ideas that we can use to effectively offer support to our families and loved ones who are feeling anxious? Can you explain?
Being present, staying in touch and letting them they are loved is the most effective way to communicate they aren’t alone going through this. And keeping a healthy perspective: we will get through this.
Ok. Thanks for all that. Let’s now jump to the main core of our interview. As you know the stock market and the economy in general have become extremely volatile and uncertain. Many people “dollar cost average” and put aside a monthly sum into a long-term savings plan for retirement, college, or a home purchase. If a loved one or a client came to you and said, “I have been saving and investing $500 every month in an S&P 500 index fund. Over the next few months until the dust settles, should I be doing something else with my money?”, what would you say to them?
Unless you have to, it’s too late to sell now. Patience is a luxury afforded to individual investors — it is extremely valuable should be used consciously. Institutions are forced to sell aggressively because they can’t afford near term losses if they want to attract new funds, whereas individual investors don’t need to worry about that.
While investors are generally quite good at picking winners, they’re much less skilled at timing their sales. An interesting paper published early last year shows investors underperform even entirely random selling by a solid margin. In large part this is because sales often happen in times of panic, much like now.
Eventually the economy will recover and rebound. Certain sectors, like travel and hospitality might be hurting for a while. But other sectors, like technology and healthcare, might do very well. If someone wanted to prepare today to take advantage of the future recovery, what would you suggest they do?
If you are going to make changes to your portfolio, do it within the asset class you already own (i.e. shifting equities from one sector to another). A careful analysis of past recessions shows that the technology, industrial, and consumer discretionary sectors are consistently among the worst performers late in the business cycle and through recessions. In contrast, health care and consumer staples hold up the best. Importantly, if you are going to make these changes, you need to vigilantly monitor the recovery, as the performance is exactly reversed once the economy turns around.
Are there sectors that provide exciting and lucrative investment opportunities today, specifically because of the volatility and uncertainty?
It depends on the investment horizon. In the near term, it’s impossible to tell how far valuations might drop because we can’t analyze this crisis solely through an economic lens. If economics were the sole factor, it seems like you might be able to buy literally any risk asset and make money.
Policymakers are doing an unprecedented amount to cushion the pandemic blow — from the sheer scale of both monetary and fiscal stimulus going into the economy to the number of central banking taboos being broken (like buying junk bonds).
However, there is the public health lens to consider, and that’s a lot more bifurcated. In one scenario, normal economic activity cannot resume for months, rendering most of the stimulus ineffective. In another, a swift resolution to the crisis restores some sense of normalcy, and economic activity is supercharged by the lending hand of the government.
Taking a 30,000-foot view, companies that are part of the remote learning and working ecosystem are worth looking at regardless of their valuation. Many aspects of how we do business and education will change permanently. People will realize they might be more productive taking a meeting from their office than traveling twenty minutes just to shake hands. Schools will likely enable students that would normally miss class because of sickness to make up lectures through individual online portals. The crisis will speed up some of the change we already began to see.
Are there alternative investments that you think more people should look more deeply at?
I think this is the time to look at traditional investments because many of them are going to be severely undervalued (even as others crash for the right reasons).
If a person in their thirties and forties came to you today and said that they have $10,000 that they want to put away today for a long-term investment what would you advise them to do with it?
If you do not have much time to spend on active management of your portfolio, buy the equity market through an ETF. If you’re in your 30s and 40s and you plan to invest your money over a horizon of more than 10 years, equities are a good investment and will pay off handsomely. You don’t need to mix in fixed-income because your salary should provide enough cushion to handle occasional liquidity shocks. If $10,000 is the entire amount of your savings, the better mix is 60% stocks and 40% bonds, a version of the risk-parity portfolio popularized by Bridgewater. With the negative correlation between bonds and stocks during times of crisis, you will be able to cash out at least some of your savings in case you need them, without missing out on the subsequent rebound in equities.
Ok, thank you! Here is a more general finance question. You are a “finance insider”. If you had to advise your adult child about 5 non intuitive essentials for smart investing what would you say? Can you please give a story or an example for each?
Think long term, not short term (where will this investment be in 5 years?) Know your risk tolerance. Come to your own conclusions. It’s ok to be wrong as long as you learn from it.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“I’m a great believer in luck, and I find the harder I work, the more I have of it.“
I think of hard working as simply raising the odds you’ll be in the right place when the lucky moment arrives. I’ve certainly benefited from plenty of luck: getting into a US university, getting hired and taught the ropes, getting mentored by those who helped propel my career, and meeting far smarter people than myself who became colleagues. But it always started with putting in the work to reach a goal: do well on a test, find a new angle for a project, etc.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂
Give everyone a tool to better manage their savings and retire in peace.
Thank you for the interview. We wish you only continued success!