Investment Commentary | Second Quarter 2020
7 min read
The human mind is set to look for patterns. Rules of thumb (‘heuristics’) allow us to analyse situations, solve problems and make decisions quickly when we don’t have the time or information to perform deep analysis.
These have unforeseen consequences. Mental short cuts can be influenced by in-built biases such as risk aversion – when we hear bad news, we may struggle to look to the long term. We may panic and lose our sense of proportion. We may believe the many theories which have flared in recent years, spurred on by the internet and its unruly offspring, Twitter and Facebook.
One example raised recently is the relationship between the metre and the Great Pyramid of Giza. The length of a metre is the distance travelled by the speed of light in a vacuum during 1/299792458ths of a second. This same number appears in the latitude of the Great Pyramid – 29.9792458 degrees north. Coincidence? For some this is evidence that aliens are responsible for pretty much everything.
This tale may be more evidence that correlation does not equal causation, but we can definitely say that some of this is really serious – we have seen a dramatic rise in fake news and a dramatic slump in vaccinations for example.

In another coincidence (perhaps), 8.5 is emerging as a key number to watch. $8.5bn is the amount pledged globally for the research into a vaccine against Covid-19 across 140 programs. Likewise, the best estimate we have seen for the lost economic output as a result of the coronavirus crisis is an amount exactly 100 times greater than this: the world economy will be $8.5 trillion dollars smaller than it would have been by 2021 if the virus had not hit.
As well as lots of large numbers, we are analysing several letters, such as U, V and W. These are possible shapes of the economic recovery, the best case being a V shaped one where we sharply return to normality. The worst is probably W where the recovery fades quickly and another recession emerges.
Without a vaccine, however, we may get a ‘reverse radical recovery’ as described in the Wall Street Journal. Think of the mathematical symbol for the square root, back to front – the economy jumps back up but to below previous levels and then flatlines as businesses are unable to return to normal, local lockdowns spring up, and consumers face rising unemployment.
The Economist had a similar take and has written about ‘the 90% economy’. 90% in most spheres is a good result, but in an economy it means higher unemployment and lower consumer confidence and business investment.
The last quarter was easy on investors as governments and central banks ensured economies didn’t fall away like the side of a pyramid, but the next few will be trickier as we start to understand what is actually going on. We will however continue to look through much of this noise and focus on the long term. A vaccine will emerge; the virus will pass; economies will recover; and we will meet again.
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