Quintin Rayer explores the fundamental causes of financial crises and sketches a possible approach for better managing investments.
Although markets regularly have periods of falling prices, it seems easy for trustees and other financial professionals to focus on the upside, directing relatively little effort towards spotting the next crisis. Recent events have shown that political events often affect markets with outcomes not as anticipated by mainstream opinion. However, press coverage seems short-term, with negative market events rapidly forgotten.
Portfolio managers and trustees should be attempting to form judgments about the likelihood of developing market crises and discussing these with their clients. Such conversations should help ensure that clients have a more complete and realistic understanding of the risks their investments may entail, and facilitate a better discussion around portfolio investment allocations.
The Actuary is the leading publication for the actuarial profession in the United Kingdom, published in London by Redactive Publishing on behalf of the Institute and Faculty of Actuaries. Members of the Institute and Faculty of Actuaries provide commercial, financial and technical advice underpinning the operation of insurance companies, pension funds and other organisations, helping them and the public at large to make financial sense of the future.
Q G Rayer (2017), Anticipating market crises, The Actuary, ©The Institute and Faculty of Actuaries, www.theactuary.com, October 2017, p20-21.