What these three professionals learnt from the worst bond market sell-off in 76 years

Hans Lee

Livewire Markets

Between Michael Korber of Perpetual Asset Management, John Likos at BondAdviser, and Jay Sivapalan from Janus Henderson, we have featured 85 years of experience in fixed-income markets throughout this three-part series on the bond market. 

But even after all this time, the best investors never stop learning. Particularly after the last two years in markets - culminating in this record year for bond selloffs - everyone has learnt a thing or two about how they invest. 

In this, the final instalment of our series, I ask our three money managers one last question:

What's the biggest lesson you will take away from this period of time as an investor?

This wire is the collection of their responses - humility, hubris, and all.

Perpetual's Korber: Don't get too attached

In the words of British comedian and television presenter John Oliver, "It turns out hindsight, much like the year we’re all now desperately looking forward to, is 2020." That quote is from November 2016 (no prizes for guessing what major world event was taking place then) but the essence still applies. Hindsight is 20/20 in every sense - and that also applies in financial markets. But even after nearly 40 years in the game, Korber says his biggest takeaway is to look at the big picture.

"I think that the lesson we might be learning in the near future is to not get too wrapped up in a single market driver," Korber said. 

His other biggest advice is to look at quality, from the ground up. Picking a quality investment will allow you to weather whatever black swans come your way. 

"Quality issuers and equities reveal their quality in trying times. The better the job we do in identifying those quality opportunities, the less we have to worry about the macro or monetary policy picture," Korber added. 

Janus Henderson's Sivapalan: Don't be afraid to be a contrarian

It's often said that sometimes the best thing to do in markets is to do the most uncomfortable thing. In Sivapalan's case, he's learnt that being a short-term contrarian sometimes makes you a medium-term outperformer. As the liquidity starts to dry up and bond yields rise from the unprecedented level of zero, dominant forces in markets begin to change. And that's where he draws the line.

"The biggest lesson is that when the inevitable reversal of a decades-long trend occurs, it can take place within a matter of weeks and investors need to be prepared to position contrary to market consensus. Going against the tide can often be challenging in the short-term, but in our experience leads to the best results over the medium-term," Sivapalan said.

"Going against the tide can often be challenging in the short term, but in our experience leads to the best results over the medium term."

BondAdviser's Likos: Be humble

Likos has, to put it politely, a track record of landing himself in the middle of a firestorm. As he recounts to me, his parents lost the family business during the 1992 recession, he worked in London from September 2001, then was told to pack up during the depths of the Global Financial Crisis. 

With that in mind, his biggest lesson for investors is exactly the one you would probably expect from him - be humble. In the depths of this COVID-fuelled bull run for all assets, NFTs were all the rage, FinTwit became a hive of Jordan Belfort-wannabes, and Reddit became more than a source of gaming news and awkward memes. 

Now, as many of those same first-time traders lick their wounds and count their losses, Likos says it's time to be more than just someone who stares at green numbers on a screen. 

"As the recession drumbeats intensify, the calls from some corners seem to welcome this turn of events. But be careful what you wish for as the chances are you will not like what you see," Likos said. 

"In the meantime, if you’re one of the lucky ones to continue to navigate these challenges at the top of your class, be grateful. Even better, help those that need it."

And I think that's as lovely a note as we're going to possibly end on.

Want more content like this? 

Thanks for reading the Livewire fixed income collection. I hope you've learned something, as I know I have writing it. If you missed the first two parts, you can click here:

Fixed Income
Why global bonds are in their first bear market in 70 years
Fixed Income
Three fixed-income veterans name their top conviction trade for FY23

Stay tuned for our other pieces covering global markets, asset allocation, Australian equities, and so much more all coming soon. 

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Hans Lee
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Hans is part of Livewire's content team. He is the moderator and creator of Signal or Noise. He also writes the LW-MI Morning Wrap on Tuesdays and Thursdays.

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