• Christian Armbruester

Event Risk



How should we be positioned for the US election, Brexit and COVID-19?


I like events, and the bigger they are the better. The reason is very simple, as all that matters is the outcome of the event and I don’t have to worry about anything else. Goodbye randomness and hello focused analysis. A classic example of an event driven investment strategy is speculating on mergers, but of course we have bigger fish to fry. The three horsemen of the apocalypse as far as event risks are upon us, and the outcome of what happens in the next few months, will have profound implications for the economy, the planet, and generations to come. So, what are we to make of the US elections, Brexit, and COVID-19?


A Trump or Biden win will greatly affect US foreign policy, corporate regulations, taxes, and the environment. We could speculate on specific commodities, healthcare, or technology stocks that would do well under either new administration, but that would be rather risky as the outcomes of elections are notoriously hard to predict. America it seems is split right down the middle. After all, you cannot convince someone who likes Coca Cola to start drinking Pepsi. Better to wait until the results are known on this one and using any election induced volatility to buy more equities. That is, if you think that Apple, Goldman, Visa, and Amazon are going to continue to do what they do, regardless of who holds the codes to the nuclear weapons arsenal.


Brexit, on the other hand, is a much more interesting investment proposition. That is because the risk is more concentrated and thus the potential impact much greater, depending on whether we leave with or without a deal. The markets have already taken a strong view on the outcome with Sterling trading near all-time lows against the Euro. That makes going the other way the more interesting risk and reward trade. Who knows, maybe it will be better than the absolute worst, and wouldn’t it be nice to be hoping for the best after all this Brexit fatigue?


Which brings us to COVID-19, and the greatest threat to humanity of the century. There is no telling what will happen next, or how long it will take, but the trade is the same nonetheless. You either prepare for the next great depression, hoard physical gold bullion, and start growing your own vegetables, or better yet, you buy all the things that are down the most since it all started. The thing is, we have had worse. The Spanish Flu killed more than 50 million people. Yet if you had bought the stock market in 1918, you would have done very well indeed. Mankind has always found a way to adapt and survive, so why should this be any different? Soon too these events shall pass, so make sure you position yourself accordingly.

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