Why the next decade won’t look like the last

Staci West (SW): I’m Staci West from FundCalibre, and today I’m joined by Alec Cutler, manager of the Elite rated Orbis Global Balanced and Global Cautious Funds. Alec, thank you very much for joining me today.

Alec Cutler (AC): Well, thanks for having me.

SW: Now, you said in a article recently that if you put inflation and inequality together, that you get instability, and that’s society’s alarm bell that something has gone wrong and needs to change. And then in that same piece you talked about how that you can no longer depend on global support. So can you just walk me through what this all means? It’s a lot to unpack from right off the top, but then also importantly for, for this is what does that mean and how does that influence you when you are running the funds?

AC: The easiest way to get all this into, into a a brief statement would be that the world is — the investing world — is focused on and very enthusiastic about the kind of high end aspects of the stock market in particular and in the US stock market in particular. So the large US growth stocks and AI and fascinated by that. And kind of giving short shift to what what we think is a much longer term issue and much longer term trends, namely countries needing to get more self-sufficient, countries needing to focus more on the base of the pyramid of needs in order to run a country properly. So national security, food security energy security, industrial security. And you’re seeing over time, you’re seeing in fits and starts movements towards focusing on that, those bottom foundational needs. But it’s really only in fits and starts the rest of the time. The vast majority of the time, the investing world is happy to be focused on what it perceives to be the quality aspects of the market, the US technology, AI in particular.

SW: And I know that you are a big fan of psychology. We have talked about it before human behaviour, finance, how it all works together. And with that in mind, what is kind of one of the, or the biggest cognitive bias that you see investors have today, but then also how do we go about combating that?

AC: Well, it hands down it’s overconfidence and an assumption that the future will be like the past. So it it in, in a way it’s overconfidence that the future will be like the past, not the past a hundred years, the past seven, eight years, or the past three quarters. And the reality is that we’ve lived through a blessed, wonderful time with many, many tailwinds. And that’s just not real. That’s just not long-term existence on this planet. Probabilistically, we’re in for a period of tough times not just in terms of, of things like inflation job security, things that we can kind of see and feel today, particularly with people worried about what AI might do. But things like defence, things like having adequate access to, to energy at a reasonable price. Things like investment returns, probabilistically where with where markets are valued today, we should expect negative to a zero return, especially inflation adjusted in stock markets today.

SW: So if we are entering a kind of new world order, how should investors then be thinking about their, their own portfolios today versus say 20 years ago?

AC: I think we should think about our portfolios like we did 20 years ago, not like we have for the last 10 or 15 years. If you were to, if you were to construct a portfolio 20 years ago, I think you’d have, you’d really focus on diversification. Geographically. You’d focus on diversification in asset classes, you’d focus on diversification in style. So value versus growth. If you look at the way we’re constructing portfolios typically today, super us heavy, very growth heavy very index driven. So even narrower than than would appear to think if you, if you hold three or four different passive investments, you may think that you’re fairly diversified, but you’re, you’re actually owning all the same thing. And so I think, yeah, I think it’d be great to go back 20 years and work on portfolios as if we were back in that period of time.

SW: Well, Alec, thank you very much for joining me today. And if you would like more information on the elite rated Orbis Global Balanced, or Orbis Global Cautious Funds, please visit fund calibre.com